Oil exchange traded funds slipped Thursday after the Organization of Petroleum Exporting Countries failed to agree on a production ceiling, with Iran planning to pump out more crude.
On Thursday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, dipped 0.3% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, was flat. USO was also testing its 200-day simple moving average.
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Meanwhile, WTI crude oil futures were trading around $49.2 per barrel while Brent crude oil futures were hovering around $50.1 per barrel.
While some in OPEC tried to set a new collective ceiling in a bid to support prices, the Thursday meeting ended with no new policy or ceiling amid resistance from Iran, Reuters reports.
Nevertheless, Saudi Arabia tried to assuage markets, promising to not flood the markets with oil.
“We will be very gentle in our approach and make sure we don’t shock the market in any way,” Saudi Arabia’s new energy minister, Khalid al-Falih, told Reuters. “There is no reason to expect that Saudi Arabia is going to go on a flooding campaign.”[related_stories]
Saudi Arabia previously said it would join a production freeze deal if Iran agreed to curb output. However, Tehran has maintained that it should be allowed to raise production to previous levels before the introduction of Western sanctions over Iran’s nuclear program, instead arguing for individual-country production quotas.
Consequently, market observers believe that the failure of a deal reflects political differences that are undermining the organization, notably between the Sunni-led kingdom and the Shi’ite Islamic Republic.
“It is bearish short-term for oil prices. But what is also important is that Saudis are not planning to flood the market,” Gary Ross, founder of PIRA consultancy, told Reuters.
Nevertheless, fundamentals are improving in the energy market. For example, U.S., India and other major consumers are seeing increased demand, the Wall Street Journal reports. On the supply side, U.S. shale production has fallen off in response to the collapsed prices, and producers like Nigeria and Canada have experienced disruptions.
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United States Oil Fund