Investors’ interest in US energy stocks and oil is rising again as oil prices have rallied and surged past $70 per barrel.
Shortly after Donald Trump declared he would pull out of the Iran nuclear deal, implemented in 2015, and reimpose economic sanctions, WTI futures for June reached $70.69 for the first time since November 2014 and Brent futures rose to $75.55 a barrel.
Investors around the world have changed tact and poured around $18 million into exchange-traded products that track US energy stocks in the last month, following strong outflows over four weeks until 4 May. So far this year, the inflows total almost $300 million.
Oil sees outflows despite rising prices
More specifically, oil stocks within ETFs are still suffering outflows of $156 million and $260 million over the past month and since 1 January respectively. The redemptions come despite soaring performance. Oil stocks have returned on average 14% in the past month alone, and have topped 16.2% since the New Year.
For example, the SPDR Select Energy Fund (XLE) is up 10% over the past month, while the VanEck Vectors Oil Services ETF (OIH) is up more than 15% in the same period.
Some analysts say that Trump’s action alone will cause Brent oil prices to jump another $5 per barrel to hover around $80 for the rest of the year.
Price increases not guaranteed
Although pulling out of the Iran nuclear deal could affect Iran’s oil exports to the US, Trump and his administration may struggle to receive foreign allies’ support in imposing sanctions – some of Iran’s biggest customers are China and the EU. Iranian authorities also said they would work to mitigate any supply shortages.
But Iran is not the only source of supply risk, as other OPEC countries, such as Nigeria, Libya, Angola and Venezuela face their own political turmoil and conflicts.
According to estimates, OPEC production averaged 1.54 million barrels per day in the three months of 2018, down from 1.77 million between October and December last year.
