Oil's Slump: Worse Before it Gets Better

Oil prices slumped to five-month lows Thursday, dragging on the already slumping 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.

Some of the struggles of oil and the energy sector this year can be pinned on investors’ concerns regarding the ability of major oil-producing nations, including the Organization of Petroleum Exporting Countries (OPEC), to effectively reduce production.

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.

“Weekly U.S. government data on Wednesday showed crude stocks fell 930,000 barrels, less than half the 2.3 million barrel drop analysts had expected. Stocks stand just 7 million barrels off a record high,” reports CNBC.

Some market observers note that OPEC’s importance in charting the course for oil prices is being diminished as U.S. shale producers rush to up production. OPEC output has declined for several straight months while Russia, the largest non-OPEC producer, has been trimming production since late 2016. Yet, oil prices continue sliding, proving the point that U.S. production is contributing to lower prices.