Assessing the Upside of Oil ETFs

Oil exchange traded products, including the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, have been getting a lift as the underlying commodity fights off some notable fundamental headwinds to trade higher. Some market observers crude still has plenty of upside to come.

Last week, oil and energy exchange traded funds rallied Thursday after the Organization of Petroleum Exporting Countries agreed to the first output cut since 2008, with Saudi Arabia relaxing its position on Iran amid stubbornly low oil prices.

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Although there are some oil market followers that are bullish on the commodity, significant supply concerns cannot be overlooked. 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.

OPEC plans to diminish output to a range of 32.5 to 33.0 million barrels per day from its current estimated output of 33.24 million barrels per day. While Saudi Arabia, OPEC’s biggest producer, has agreed to reduce output, Iran, Libya and Nigeria might not follow suit.

Even with the supply issues widely known, some technical analysts see upside coming for crude.