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, remain beholden to production from the Organization of Petroleum Exporting Countries (OPEC) and U.S. shale producers, but some analysts believe oil can deliver some upside.
Oil traders are concerned over how fast U.S. shale oil producers will increase production to capture the rising prices. Rig counts have recently ticked higher and with credit and earnings issues improving for some U.S. shale drillers, those companies may seize the opportunity to exploit higher pricing in the near-term.
“While the historic agreement between producers that went into effect Jan. 1 “induced a euphoric and unsustainable surge” in bullish bets by investors, that also set the stage for an inevitable sell-off as record fourth-quarter OPEC output and oil stored at sea moved to onshore sites, according to Citigroup,” reports Serene Cheong for Bloomberg. “Goldman Sachs has also made similar comments, saying ample inventories that have undermined the output cuts are set to shrink and calling for more patience from the market.”
Thanks to the shale boom, the U.S. is now a major oil exporter, which could threaten oil prices. In fact, China has become a major buyer of U.S. crude.