Oil prices sank to near 12-year lows last week, sending the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, down an average of 12% for the week.
That dour start to the year for USO and BNO comes after the exchange traded funds each lost more than 40 percent last year. Even with the faltering prices, the Organization of Petroleum Exporting Countries (OPEC) is not doing much to reverse oil’s slide.
Last month, oil prices fell to their lowest levels since early 2009 after OPEC’s meeting Friday ended without an agreement to lower production, Reuters reports. OPEC has been fueling a global supply glut in an attempt to maintain market share and squeeze out high-cost oil producers, such as the nascent shale industry in the U.S.
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]
“By 2018, if there has not been significant cuts to non-OPEC oil production (and therefore commensurately higher oil prices), Saudi Arabia will admit defeat as access to the international bond markets will become increasingly difficult and its store of assets would be largely dwindled. As an outside scenario, if prices fail to respond to cuts in non-OPEC production, Saudi Arabia will be forced to cut production in 2018 anyway. If non-OPEC supply is cut and prices rise, Saudi Arabia can abandon the strategy earlier,” said ETF Securities in a note posted by Commodities Now.