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, are trading modestly lower to start 2017, but that is not preventing some professional traders from being bullish on crude.
Oil prices are rebounding after Saudi Arabia and its allies in the Organization of Petroleum Exporting Countries, along with other non-OPEC producers, pledged to cut output to end the global glut that depressed crude prices for two years. Oil was one of 2016’s best-performing commodities in what was its best annual showing since the global financial crisis.
Some 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.
Hedge funds “bets on rising West Texas Intermediate crude prices reached the highest in data going back to 2006 as the Organization of Petroleum Exporting Countries and other producers reduce output to balance the market. Saudi Arabia, Algeria and Kuwait have already made deeper cuts than required, while Russia has been able to reduce supply faster than expected, ministers from the countries said over the weekend in Vienna,” reports Mark Shenk for Bloomberg.
Eleven other major oil-producing countries that are not OPEC members, including Russia, have also vowed to trim output. Russia is the largest non-OPEC producer, making its production reduction efforts a significant part of oil’s recent resurgence.
Other major oil-producing nations that are not OPEC members but are pledging to curb production include Bahrain, Bolivia, Brunei, Equatorial Guinea, Malaysia, Sudan and South Sudan.
“Funds increased their net-long position, or the difference between wagers on a price increase and bets on a decline, by 14 percent in the week ended Jan. 17, U.S. Commodity Futures Trading Commission data show,” reports Bloomberg.
Year-to-date inflows to USO have been modest at $2.15 million. Last year, USO lost $636.1 million in assets under management.
For more information on the crude oil market, visit our oil category.
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