Energy-sector ETFs the only group to see $1 billion in weekly inflows as Suez Canal blockage and coming summer demand create favorable backdrop for oil

Oil texas
Workers extracting oil from oil wells in the Permian Basin in Midland, Texas. Benjamin Lowy/Getty Images
  • Energy-sector ETFs took in more than $US1 ($1) billion in inflows this week, the only funds from a major sector to do so.
  • Energy inflows accompanied some recovery in oil prices after they dropped into correction territory.
  • Oil prices could stick to higher ground if a cargo ship stuck in the Suez Canal remains lodged there for weeks.
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Energy sector exchange-traded funds were the only group this week to add more than $US1 ($1) billion in inflows as the cargo-ship blockage in the Suez Canal helped oil prices recover from their slump into correction territory.

Energy ETFs were a standout as flows to sector funds “fell prey to the general uncertainty” that ran through the week ended March 24, said EPFR, a subsidiary of Informa that provides fund flows and asset allocation data.

Four of the 11 major groups — commodities, telecoms, technology and financial sector funds — logged outflows for the week, according to a note issued Friday.

Investors pushed into energy sector funds “during a week when the blockage of the Suez Canal, the prospect of the North American spring and summer driving season and expectations of less investment in new supply helped the price of oil rebound from an earlier correction,” said Cameron Brandt, director of research at EPFR, in the note.

Brent oil, the international benchmark, and West Texas Intermediate crude prices tracking US light, sweet crude this week fell into correction territory, with prices down 10% or more from recent highs.

Prices have since recovered some ground, with Brent and WTI each rising by more than 4% on Friday. Brent traded above $US64 ($84) a barrel after sliding below $US61 ($80) this week. WTI hovered close to $US61 ($80) following its drop under $US58 ($76) a barrel.

Also on Friday, the Energy Select Sector SPDR Fund rose 1.8%, the Vanguard Energy ETF picked up 1% and the SPDR S&P Oil & Gas Exploration & Production ETF added on 2.3%.

Oil prices gained on expectations of tighter oil supplies while a cargo ship remains stuck in the Suez Canal, a key trade route that’s used to transport crude and refined products and connects Europe to Asia. Analysts have said it may be weeks before the Ever Given, a nearly 60.96m-wide and 396.24m-long vessel, is dislodged from the canal.

The blockage is costing $US400 ($525) million an hour in delayed goods, according to a Lloyd’s List estimate, with hundreds of cargo ships are now unable to pass through the canal.

“The blockage has impacted over 20 oil tankers and the longer this lasts, it should drive oil prices higher,” Edward Moya, senior market analyst at Oanda, wrote in a note. Meanwhile, “Europe is slowly getting their vaccine rollout in order and that should trigger energy traders to price in an improved crude demand outlook by the summer,” he said.

As the summer driving season approaches in the US, roughly 14% of the population has been vaccinated for the coronavirus, according to the Centers for Disease Control and Prevention. President Joe Biden on Thursday raised his vaccination goal to 200 million for the first 100 days of his administration after hitting his previous target of 100 million.