Oil ETFs May Need to Take a Breather

The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, is up 5% over the past month and its gains are rapidly evaporating, lending efficacy to the notion that oil and the related exchange traded funds rallied too far too fast.

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.