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, traded higher Monday on some positive news on the US/China trade front as well as speculation that Saudi Arabia is inching closer to pricing an initial public offering (IPO) for its state-run oil giant, Aramco.
Recent bouts of geopolitical upheaval have sporadically lifted oil prices, but those aren’t catalysts investors can count on. This type of hyperbolic reaction has been infecting the market forever, most recently with the daily vacillations and heightened emotional content related to the U.S.-China trade war, where investors scramble to find the right market play based on hasty social media reactions.
“Saudi Arabia formally began an initial public offering on Sunday of a portion of Saudi Aramco after years of delays, with the de facto leader of the Organization of the Petroleum Exporting Countries hoping for a $2 trillion valuation for the oil-processing facility,” according to MarketWatch.
The trade war with China is intensifying pressure on oil prices and energy stocks, and some analysts believe oil supplies are trending higher. Looking ahead, Citigroup and JPMorgan Chase analysts project global supply will expand roughly one million barrels per day more than total demand in 2020, contributing to a surplus each quarter of next year.
“Along with a better-than-expected jobs report from the U.S. on Friday, those factors have combined to help lift the hope that demand for crude oil will remain healthy, amid signs of slack in economic expansion outside of the U.S.,” notes MarketWatch.
The expected global supply glut is also the latest threat to the Organization of the Petroleum Exporting Countries and other producers, which have already enacted production caps in an attempt to stabilize prices and balance the market. Predictably, geopolitical headwinds factor into the oil equation. Fortunately, more supply cuts could be in the offing.
“Iran Oil Minister Zanganeh reportedly said he expects further production cuts to be agreed at the next OPEC meeting in December,” according to Seeking Alpha.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.