With the Organization of Petroleum Exporting Countries (OPEC) meeting today, it is not surprising that the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, is in focus.
USO, one of the most heavily traded commodities exchange traded products, is particularly in focus for short sellers that are expecting OPEC to disappoint. That is a possibility after Saudi Arabia, the largest producer in the cartel, withdrew from the meeting.
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.
“With oil plunging about 4 percent on Tuesday on news that OPEC talks were in a deadlock, Todd Gordon of TradingAnalysis.com says that oil-tracking ETF USO’s sideways ‘consolidation’ and a rising U.S. dollar do not bode well for the commodity. Since oil is priced in dollars, a stronger U.S. currency typically means that it takes fewer dollars to buy the same amount of crude,” reports CNBC.
United States Oil Fund
OPEC is meeting today to finalize the therms of a deal to limit output. An outline was reached in September but negotiations on the details remain ongoing. A Monday report revealed a last ditch effort to bring top oil producers together to support weak oil prices, which triggered short covering.
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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.
“Oil bulls are hoping that OPEC announces a production cut to tamp down on the global oil glut, but as of Tuesday, that prospect is looking less likely,” according to CNBC.
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