While the Organization of Petroleum Exporting Countries have been working to cut down on the global supply glut, U.S. producers have been pumping out more crude oil, potentially capping gains in oil prices and related exchange traded funds.
The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, is up 3.2% year-to-date and gained 8.8% over the past year as WTI crude oil futures no trade at around $61.5 per barrel.
However, expanding U.S. stockpiles could depress further gains in the crude oil market. Inventories in U.S. tanks and terminals likely increased by 3 million barrels last week, potentially marking the fourth straight week of gains and the longest expansion since the first quarter of 2017, Bloomberg reports. The government will reveal official numbers Thursday.
OPEC has “taken a lot of production off the table, but it’s just being replaced by U.S. production to a large degree,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc., told Bloomberg. Cartel members recently sought to reassure investors about their resolve but “the market’s not buying it.”
Faltering confidence in the global economic outlook and a stronger U.S. dollar have also weighed on commodities.
OPEC has reiterated its commitment to curb an oversupply and possibly extend its alliance with Russia beyond this year.
Meanwhile, Deputy Energy Secretary Dan Brouillette sees a “phenomenal” outlook for U.S. oil production in both 2018 and 2019, which may potentially erase the support from OPEC and its allies.
The Energy Information Administration calculates that daily output, which was the highest since 1972 last year, could hit a new record of 10.6 million barrels this year, the Wall Street Journal reports. The EIA even predicts the U.S. will become a net exporter by 2029, and if all other energy is included, in just four years.
BP PLC’s latest world energy outlook sees the U.S. will make up 18% of world oil and related liquids supply in a little over two decades, compared to second-place Saudi Arabia at 13%.
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