Energy funds gained 4.2% on average as WTI crude oil prices remained above $90 a barrel. This firmness in prices can be explained by the decrease in supply and more specifically by the situation around Cushing, Oklahoma. Cushing hosts one of the most important oil storage hubs in North America. This oil storage facility serves as a major hub for storing and distributing crude oil in the United States. Furthermore, it is a convergence point for many pipelines that transport crude oil extracted from different regions to refineries or final markets. It is often used as a reference point for oil prices in the United States.
Steady depletions in inventories have been observed at this facility especially throughout Q3 amidst global market tightening. John Kemp from Reuters identifies this pattern of differential depletion and sudden transition into severe backwardation as indicative of a short squeeze.
Factors contributing to current conditions primarily relate to Saudia Arabia and Russia reducing their production along with positive forecasts for American economic growth, which would therefore increase energy demand.
However, while this overall trend towards a tighter global oil market is clear, some caution should be exercised when interpreting recent developments at Cushing. Specifically, it may not be entirely accurate or fair to attribute all changes in this localized market directly and solely to broader international trends. For instance, while there has indeed been an abrupt depletion of stocks at Cushing accompanied by escalating future prices, this does not necessarily mean that the worldwide tightening happened as swiftly or profoundly as suggested by these localized events.
Over the past week, iShares S&P/TSX Capped Energy Index ETF (XEG) gained +4.17%, bringing its year-to-date performance to +14.03%. This fund also attracted more than CAD 33 million over the same period.
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