The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, are among this year’s standout commodities exchange traded products, but some energy market observers believe crude is ready to retreat.
U.S. crude oil inventories are still near their highest level in mover 80 years, reflecting the ongoing global supply glut that has pressured prices since 2014. Energy stockpiles typically recede at this time of the year as refineries complete seasonal maintenance and process oil into refined products, like gasoline.
Related: Oil ETFs: Buying the Dip With USO, BNO
Earlier this week, oil ETFs strengthened after Goldman Sachs analysts Damien Courvalin and Jeffrey Currie said that a decline in production due to unexpected disruptions, along with sustained demand, have created a “sudden halt” to the output surplus, reports Serene Cheong for Bloomberg. The shifting outlook that supply losses are leading to a rebalance was also mirrored by Morgan Stanley, Barclays Plc and Bank of America Corp.
A number of factors are weighing on the global crude oil supply chain, including wildfires in Canada that disrupted major oil sands production in Alberta, pipeline attacks in Nigeria and outages in Venezuela. Consequently, Goldman projects production will remain below demand through the second half of the year.
[related_stories]Meanwhile, the bank believes global demand will grow by 1.4 million barrels a day in 2016, compared to 1.2 million predicted previously.