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 among this year’s worst-performing commodities exchange traded products, but some analysts are maintaining the view that oil is poised to rally.
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.
However, some oil market observers believe OPEC’s influence is waning. 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 some estimates, 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.
“RBC Capital Markets Head of Commodity Strategy and CNBC Contributor Helima Croft predicts prices will climb to the low $60s within months — a nearly 20 percent move from current levels. That would translate to roughly a $1.80 gasoline spot price,” reports CNBC.
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.
Saudi Arabia is eyeing oil at $60 barrel this year, a comfortable price for many OPEC members, but probably not high enough to encourage U.S. shale producers to significantly increase their rig counts. Saudi Arabia is OPEC’s largest producer.
“In a research note out Friday, Croft wrote, “If these strikes are not followed up by a serious effort to oust the Syrian leader [Bashar Assad], none of these scenarios may materialize and the oil implications will remain negligible. However, given that President Trump had previously signaled deep disdain for humanitarian interventions and Middle Eastern military engagements, we are now in uncharted waters…,” reports CNBC.
For more information on the crude oil market, visit our oil category.