Oil exchange traded funds jumped back above their long-term trend line on Monday as crude oil prices rallied to a three-week high on bets that the Organization of Petroleum Exporting Countries will agree to a production cut later this month.
On Monday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, gained 4.1% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, rose 4.4%, with both ETFs testing their long-term resistance at the 200-day simple moving average.
Meanwhile, WTI crude oil futures were up 4.3% to $47.6 per barrel and Brent crude oil futures were 4.4% higher to $48.9 per barrel on Monday.
The oil market strengthened on news that Iraq and Iran, two of OPEC’s most reluctant members in favor of reducing production, may be backing the cartel’s proposal, the Wall Street Journal reports.
”It’s all adding up to where people are a little bit more bullish,” Donald Morton, senior vice president at Herbert J. Sims Co., told the WSJ. “Everybody wants to turn into a buyer.”
Moreover, traders were further reassured by comments from Russia, another major global oil supplier.
“Whether an agreement will be reached, I can’t say 100 percent, but there’s a strong likelihood that it will be achieved,” Putin told reporters on Sunday after attending the Asia-Pacific Economic Cooperation summit in Lima, according to Bloomberg.
Crude oil remained depressed in recent sessions on skepticism over OPEC’s commitment to freeze production as the energy market suffers from a global supply glut.
Anticipating OPEC will announce and implement a production cut, Goldman Sachs raised its forecast for oil prices in the first half of 2017. A Bank of America Merrill Lynch research note also anticipates a supply cut is highly likely.
Nevertheless, oil traders remain wary of speculations as they have been burned before, and any further shifts in expectations could add to price volatility before the meeting, especially with the holiday week and lower trading activity.
”Their track record is horrendous,” Mark Waggoner, president of Excel Futures, told the WSJ. “Somebody makes another statement, things could change.”
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United States Oil Fund