Following Thursday’s disappointing news out of the European Central Bank (ECB), oil futures and the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, soared, perhaps positioning the commodity for a volatile day on Friday.
Today is the day of the meeting of the Organization of Petroleum Exporting Countries (OPEC) and USO comes into the day with a one-month loss of more than 16%. OPEC has kept up production to pressure high-cost rivals, such as the developing U.S. shale oil producers. The International Energy Agency expects it will take several years before OPEC can effectively price out high-cost producers. [Oil ETFs Face World-Record Supply Glut]
“OPEC is widely expected to stick to its policies – enforced by Saudi Arabia’s oil minister Ali al-Naimi a year ago – of defending market share by pumping record volumes to drive rival, higher-cost producers out of the market,” reports Reuters. “While the Saudis can claim a partial victory over the U.S. shale oil boom, production from top non-OPEC rival Russia continues to surprise on the upside and OPEC members Iraq and Iran are set to add new barrels. World oil stockpiles are at a record, according to the International Energy Agency.”
“I think there are some potential trades that could come out of the ECB moves. It’s tough to buy the euro when it’s up nearly 3 percent on the day. Crude, however, remains on its lows despite its high historical correlation to the euro. I am considering a long position in crude at current levels and then increasing that position if the January contract can settle above $44 a barrel. I realize that the $44 level seems far off but not when you consider that crude has lost around 70 bucks in a little over a year,” writes Jim Iuorio for CNBC.