Related: Is the Slump Over? Shifting Views on Energy ETFs

Declining production in China, one of the world’s largest oil consumers, could be a catalyst for ETFs such as USO. 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.

Oil traders should be aware that the holdings of ETFs like USO’s underlying portfolio includes front-month WTI future contracts, and the oil futures market is currently in a state of contango. Consequently, USO could experience a negative roll yield when rolling a maturing futures contract for next month’s contract.

“OPEC now estimates that global surpluses will clear in the second half of 2018. But its figures are at odds with the International Energy Agency (IEA), which sees 1.5 million bpd in new production compared to OEPC’s 900,000 bpd estimate,” reports OilPrice.com.

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