Crude oil prices and commodity-related exchange traded funds could continue to slide in the coming months as Iraq begins to dump oil on to the market.
Over the past week, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, dipped 1.3% and United States Brent Oil Fund (NYSEArca: BNO) fell 2.0%. [Energy ETF Investors Should Brace for ‘New Oil Order’]
According to shipping programs, the oil market could see further pressure as Iraq plans to increase crude exports by about 26% to a record 3.75 million barrels per day in June, Bloomberg reports.
Deputy Oil Minister Fayyad al-Nimaa, though, previously stated that Iraq’s current export capacity is capped at 3.1 million barrels per day.
The increased exports may be a result of domestic budgets. Iraq’s domestic budget demand pertain to their large population as compared to their oil revenue and is now under pressure after the steep decline in oil revenue, Business Today reports. Consequently, Iraq may be dumping oil on the global markets in an effort to support state budgets as international crude prices dip.
OPEC has maintained a 30 million per barrel daily quota on oil production, despite calls for cuts to allow prices to rise. However, the organization has seen production exceed the target over the past 11 months.
Oil traders will be watching for OPEC’s production targets in its upcoming June 5 meeting. Iran’s Oil Minister Bijan Zanganeh has previously stated that OPEC would not likely lower the production ceiling any time soon as it requires a consensus among all members, Reuters reports.
Additionally, more oil traders are paying closer attention to the U.S. dollar trade as the greenback begins to appreciate against foreign currencies. The inverse correlation between the dollar and Brent was at its highest in three years about two weeks ago, Reuters reports.
With the Federal Reserve eying an interest rate hike later this year, some observers argue taking a long dollar/short crude bet if the greenback continues to appreciate.
“If the dollar index goes from today’s mid-90 levels to above 120, then oil below $50 will be very much a reality,” Doug King, chief investment officer for Merchant Commodity Fund, said in the Reuters article.
United States Brent Oil Fund
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Max Chen contributed to this article.