The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, got some help last week on the back of favorable inventory data and its production, lower production to be specific, that oil exchange traded products need to keep moving higher.
Last week, oil ETFs strengthened after the EIA revealed U.S. crude stocks declined by 14.5 million barrels last week to 511.6 million barrels, the largest weekly dip in stockpiles since January 1999, compared to expectations of an increase of 225,000 barrels, Reuters reports.
SEE MORE: Commodity ETFs May Experience Seasonal Weakness in September
Still, some oil market participants 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.
“With the U.S. shale boom supplying most of North America, OPEC has increased production to maintain their market share. This has caused massive price reductions, putting many countries at a loss. Two years ago crude oil was priced at around $100/barrel, but in today’s inundated market it rests below $50,” according to OilPrice.com.
[related_stories]OPEC has kept up production to pressure high-cost rivals, such as the developing U.S. shale oil producers. The International Energy Agency expects it will take several years before OPEC can effectively price out high-cost producers.
SEE MORE: It’s Game Time For Oil ETFs
Oil, as is often the case, has been volatile this year, but some market observers bullish traders should wait until 2017, pointing to next as a prime time for oil prices to really rebound. While production has declined in the U.S., recently rebounding oil prices are encouraging exploration and production companies to revisit spending plans with some increasing capital expenditures. That has some oil market observers concerned about a rising rig count and the subsequent impact on crude prices.
“The majority of OPEC countries are in agreement that Iran should not halt oil production. Seeing as this was a last minute change of heart, Putin believes Iran is only a minor setback and the deal will ultimately occur. OPEC is to have further informal talks on September 27th. President Putin plans to discuss the matter with Prince bin Salman at the G20 summit in China this week as well,” reports OilPrice.com.
For more information on the crude oil market, visit our oil category.
United States Oil Fund
