The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, is off nearly 15% over the past month, putting the widely followed oil exchange traded product dangerously close to another bear market.
However, some oil market observers believe the commodity has near-term rally potential falling its recent precipitous decline.
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.
SEE MORE: Energy ETFs Rally as Russia Joins OPEC in Considering Supply Limits
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.
U.S. shale drillers have been paring production in an effort to improve profitability, but some OPEC members and other major producers, including Russia, continue pumping despite lower prices. That scenario is seen as a significant headwind for oil price upside.
On the other hand, there are several reasons oil can rebound off its recent lows.
“Geopolitical risk to barrels from Nigeria, Venezuela and Libya. We continue to view output gains in Nigeria and Libya as climbing a slippery slope as serious threats to exports endure,” according to OilPrice.com. “Expected bullish money flows in the low $40s (USO enjoyed its largest w/w inflow last week since February) with managers hesitant to be short oil heading into the Nov. 30 meeting.”
[related_stories]OPEC has already reversed its policy of pumping oil without constraints, which helped bolster crude oil prices. The cartel, which meets on Nov. 30, previously adhered to an oil production policy aimed at defending its market share by undercutting costlier crude producers, namely the upstart U.S. shale oil industry, contributing to the increased global supply glut that depressed prices to multi-year lows.
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There are other catalysts that could potentially foster more upside for crude.
“Market sentiment tilting slightly back towards the possibility of an OPEC deal being made as the interests of cartel members align and core members + Russia approach their output capacity,” reports OilPrice.com.
United States Oil Fund
