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. ‘
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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.
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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.
“We continue to see a $47-$55 range for WTI heading into the November 30th OPEC meeting believing that falling crude oil and refined products stocks, the potential for a bullish OPEC announcement and managed money’s eagerness to buy dips in oil have raised the floor for the market while high levels of existing supplies, tepid demand growth and bottoming LTO production should keep rallies in check,” reports OilPrice.com.
SEE MORE: Energy ETFs Rally as Russia Joins OPEC in Considering Supply Limits
Elevated levels of production remain an issue for oil as well. 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. Russia has also signaled it might trim output as much as some traders have hoped for.
“US producer data from last week was mixed beginning with a sharp drop in producer/merchant gross shorts from 608k contracts to 560k. The oil rig count, however, jumped to 443 and is higher by 40% since May,” reports OilPrice.com.
For more information on the oil market, visit our oil category.
United States Oil Fund (NYSEArca: USO)
