Oil markets and related exchange traded funds are giving back some of their recent gains as China adds exports of refined products, U.S. rig count rises for an eighth straight week and production increases out of Nigeria and Iraq.
After a swift turn from a bear into a bull market, crude oil and related ETFs are giving back some of their recent gains Monday, ending their longest run of gains in four years.
The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, declined 3.4% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, decreased 2.5%. Over the past week, USO increased 8.0% and BNO gained 7.5%.
In the energy sector, oil equipment and services companies were among the worst performers Monday, with the iShares Dow Jones U.S. Oil Equipment Index ETF’s (NYSEArca: IEZ) down 2.3%. Meanwhile, the Energy Select Sector SPDR (NYSEArca: XLE) fell 1.3%. Over the past week, IEZ advanced 5.0% and XLE rose 2.5%.
Traders pointed to China’s soaring exports of refined products as the latest indicator of an ongoing global fuel glut, Reuters reports. China’s July exports of diesel and gasoline jumped by 181.8% and 145.2%, respectively, for the same month year-over-year.[related_stories]
Consequently, Barclays analysts argued that the 20% rally in August was unwarranted and that oil prices of $50 per barrel or higher were unsustainable.
WTI crude oil futures were 3.0% lower to $47.1 per barrel and Brent crude was down 2.9% to $49.4 per barrel.
“Oil prices will likely experience another short-term dip in the coming weeks,” Barclays predicted.
Others also believe the recent price recovery was not fueled by fundamental factors but more of a result to short-covering and speculation over potential production freezes among Organization of Petroleum Exporting Countries and other major producers.
“Positioning data seems to confirm our view that the latest oil bounce is more technical and positioning-oriented than fundamental. In fact, new buyers have been mostly absent the past few months,” Morgan Stanley said.
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Further pressuring the oil market, U.S. drillers added 10 oil rigs in the week ended August 19 during the rebound in crude prices.
In addition, Iraq plans to raise exports of Kirkuk crude by 150,000 barrels per day from northern fields after an outage since March. Meanwhile, Nigerian militant group was ready for a ceasefire and dialog with the government, which may diminish attacks on oil facilities in the Niger Delta and resume normal operations.
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United States Oil Fund