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 traded modestly higher over the past week but still sport year-to-date losses.
Now, USO, BNO and other oil-related exchange traded products face an interesting scenario courtesy of the oil futures market. That being increased bullish bets by professional traders that are not spurring prices higher.
“At the start of February, speculators were betting a net 865 million barrels of oil across the market’s two global benchmarks that prices would rise. As well as being a record, their bullish positioning expanded by 78 percent since just before the Organization of Petroleum Exporting Countries and 11 other producer nations pledged to cut global crude supplies. Benchmark prices rose about 20 percent over the same period,” reports Alex Longley for Bloomberg.
OPEC has already agreed to reduce output by 1.2 million barrels per day. After the non-OPEC producers’ cuts, total reduction now represents almost 2% of global supply. The reductions took effect January 1, and the oil producers will reconvene after six months to evaluate the results of the deal.
In a reversal of previous sentiments, Saudi Arabia accepted Iran’s higher output target as a special case. Previous OPEC talks broke down after Iran, which suffered from curtailed exports under strict global sanctions, argued for increasing its output to pre-sanction levels. However, there are some potential problem children within the cartel that could undermine the output reduction effort
There are concerns that Libya and Nigeria will be boosting output in the near-term and that other OPEC members could violate terms of the output reduction effort.
“Unfortunately for the bulls, the oil market itself has fallen asleep after an initial surge. As Standard Chartered analysts including Paul Horsnell pointed out this week, prices have been stuck around a dollar a barrel above or below $55.50 since mid-December. Meanwhile U.S. crude closed above $54 a barrel only once since OPEC’s Nov. 30 meeting, despite crossing that price level 14 times,” according to Bloomberg.
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.
In addition to China, supply from the Asia-Pacific region is expected to fall over the next several years due to poor oil infrastructure investment.
For more information on the crude oil market, visit our oil category.