The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, have recently been solid performers among commodities exchange traded products.
For example, USO is up more than 8% this month. BNO and USO have been lifted by the production cut announced earlier this month by 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.
However, data suggest some traders are betting oil pulls back over the near-term.
“Money managers trimmed bets on falling West Texas Intermediate crude prices to the lowest level since August 2014 as the Organization of Petroleum Exporting Countries and other crude-exporters prepare to start curbing output in January,” reports Mark Shenk for Bloomberg. “Oil market volatility dropped to the lowest level in more than two years on Dec. 20 and futures settled at a 17-month high on Friday.”
Other oil traders believe 2017 will be fertile ground for an oil rally. While production has declined in the U.S., recently rebounding oil prices are encouraging exploration and production companies to revisit spending plans with some increasing capital expenditures. That has some oil market observers concerned about a rising rig count and the subsequent impact on crude prices.
While OPEC is cutting back to alleviate price pressures, U.S. fracking companies could jump to capitalize on the windfall as crude oil prices jump back above $50 per barrel – according to U.S. Energy Secretary Ernest Moniz, shale oil producers can get by with oil at just over $50 per barrel due to advancements in technology and drilling techniques that have helped cut down costs.
In addition to OPEC’s production cuts, 11 major oil-producing countries that are not OPEC members also recently agree to pare output.
“Hedge funds reduced short positions, or wagers WTI will drop, by 10 percent in the week ended Dec. 20, U.S. Commodity Futures Trading Commission data show. WTI declined 1.4 percent to $52.23 a barrel in the report week. Prices settled at $53.02 a barrel in New York on Friday, the highest close since July 2015,” according to Bloomberg.
For more information on the crude oil market, visit our oil category.