How OPEC Can Limit Oil ETFs' Upside

The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and other oil-related ETPs have recently been solid performers.

Much of that ebullience is tied to supply dynamics courtesy of the Organization of Petroleum Exporting Countries (OPEC).

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. ‘

Related: A Factor that Could Hinder Oil ETF Investing

Energy markets strengthened after the U.S. Energy Information Administration revealed U.S. crude storage levels fell by a bigger-than-expected 5.2 million barrels in the week ended October 14, a withdrawal for six of the past seven weeks, reports Timothy Puko for the Wall Street Journal.

Analysts previously anticipated an injection of two million barrels, which is in line with seasonal trends in October after the end of the summer driving season, further supporting the bullish trade.

Looking ahead, the Organization of Petroleum Exporting Countries will consider agreeing on output cuts for most members when the group’s energy  ministers meet on November 30.


However, an important factor could weigh on oil’s ability to generate more near-term upside: Some OPEC members may want to continue pumping at current levels or even boost output to capitalize onn recent price strength.