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, were hammered last week.
For example, USO, one of the most heavily traded commodities exchange traded products of any stripe, slid more than 5%, but some market observers believe oil’s most recent plunge is not justified by poor fundamentals. In fact, Goldman Sachs opines that oil fundamentals are actually decent.
“Goldman is reiterating its confidence in oil at a time when investors are fretting over whether U.S. production, which has climbed to the highest since August 2015, will undermine curbs by the Organization of Petroleum Exporting Countries and its allies,” reports Serene Cheong for Bloomberg. “After posting three straight weekly gains on expectations OPEC will extend its supply cuts, crude is now set for a drop this week following a decline of more than 3.5 percent on Wednesday.”
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.