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Supply Concerns Help Prop Up Oil ETFs

This article was originally published on ETFTrends.com.

Oil-related ETFs climbed Wednesday, with crude prices hitting two-month highs, as the ongoing political uncertainty in Venezuela coupled with lower U.S. inventories helped prop up the energy outlook.

On Wednesday, the United States Oil Fund (USO) , which tracks West Texas Intermediate crude oil futures, gained 2.7% and the United States Brent Oil Fund (BNO) , which tracks Brent crude oil futures, increased 1.5%.

Meanwhile, WTI crude oil futures rose 2.4% to $54.6 per barrel and Brent crude was up 1.4% to $62.2 per barrel on Wednesday.

Crude oil began to pick up momentum this week after the U.S. imposed sanctions on Venezuela's state-owned oil giant, Petróleos de Venezuela SA, late Monday, which could further diminish global crude output and exports, the Wall Street Journal reports. The U.S. action was seen as a way to further undermine the government of President Nicolás Maduro and came in less than a week after the Trump administration recognized the country’s opposition leader as the legitimate head of state.

“Crude is up again today while the market processes new sanctions imposed on Venezuela by the Trump administration,” Stewart Glickman, energy equity analyst at CFRA Research, told the WSJ. “The sanctions—which prohibit U.S. firms from importing Venezuelan crude, at least beyond what is already in transit—are likely to affect U.S. supplies by about 500,000 barrels a day, the current level of import.”

Related: Top 34 Oil ETFs

U.S. imports of crude from Venezuela

Michael Wittner, global head of oil research at Société Générale, argued the sanctions amount to a  de facto embargo on U.S. import s of crude from Venezuela.

“Clearly, PDVSA has absolutely no incentive to sell a single barrel to the U.S. if they cannot access the money,” Wittner said.

Related: Oil ETFs Maintain Momentum on Supply Outlook

Further supporting oil prices Wednesday, the Energy Information Administration issued a bullish weekly report on U.S. inventories after it revealed crude stockpiles rose by less than 1 million barrels last week, compared to expectations of a 3.1 million-barrel rise. Gasoline inventories also unexpectedly dipped by 2.2 million barrels in their the first decline since mid November as refining activity slowed by 2.8 percentage points to 90.1% capacity utilization rate.

“This plunge in refining activity, a seasonal trend as we dive into maintenance, has yielded the first weekly drop in gasoline inventories in nine attempts,” Matt Smith, director of commodity research at ClipperData, told the WSJ.

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