ETF Trends
ETF Trends
  • United States Oil Fund (NYSEArca: USO) has surged 21% over the past month, putting it in a new bull market
  • However, OPEC has hinted at its desire to limit production in face of the prolonged low oil environment
  • Several OPEC members and Russia, the largest non-OPEC member, have been mulling production cuts

The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, has been on a torrid pace, surging 21% over the past month. That is enough to put the heavily traded oil exchange traded product in a new bull market. It is also enough to illicit some concerns about oil’s recent bullishness from plenty of skeptical traders.

There might be something to that skepticism as many of the world’s major ex-U.S. producers of oil have not displayed a willingness to pare production. Even the output reductions in the U.S. have been modest. The good news is U.S. shale output is slightly declining, but challenges remain on the output front from OPEC producers.

OPEC has hinted at its desire to limit production in face of the prolonged low oil environment. However, Iran, which has just recently re-entered the global oil market, is only just starting to ramp up production, potentially putting a damper on plans for a OPEC cut.

Oil Price Information Service’s Tom Kloza told CNBC “investors shouldn’t bank on a long-term rally for the commodity anytime soon.”

Several OPEC members and Russia, the largest non-OPEC member, have been mulling production cuts, but without Saudi Arabia taking the lead on that front, oil could still face output issues.

Qatar, Russia, Saudi Arabia and Venezuela have been in discussions to hold output steady at January levels, but only if other producers followed suit. Russia is the largest non-OPEC producer of oil and natural gas, though the country prefers higher prices even more so than Saudi Arabia.

USO holds WTI futures contracts in the nearby month and rolls its cash into the next month’s contracts before being forced to take physical delivery.

“The global imbalance between supply and demand ‘took 18-24 months to build it up — it’s not going to disappear in 18-24 days,’ Kloza said,” according to CNBC.

United States Oil Fund