The Brent crude oil-related ETF continued to rally Monday as Brent futures hit its highest level in two years after a key North Sea pipeline was shut down.
The United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, was up 1.9% Monday as Brent futures increased 2.0% to $64.7 per barrel. BNO has increased 19.6% over the past three months and gained 9.1% year-to-date.
Crude oil futures strengthened Monday after the Forties Pipeline System, one of the most important oil conduits in the world, is planned to halt production after a crack was discovered, reports Jessica Summers for Bloomberg.
“Brent is ripping,” Bob Yawger, director of futures at Mizuho Securities USA Inc., told Bloomberg. “You really don’t have a lot of spare barrels before the supply situation becomes a problem.”
The Forties Pipeline System flows into the Hound Point export terminal near Edinburgh, Scotland, pumping over 400,000 barrels of crude oil per day and contributing to the single largest constituent part of the Dated Brent grade that helps settle over half the world’s physical oil prices.
The announcement follows an agreement last week from the Organization of Petroleum Exporting Countries to extended output cuts through the end of 2018. However, the United Arab Emirates has warned that OPEC could end curbs in June if the market is no longer oversupplied by then.
There is the “expectation of tighter markets as 2018 unfolds,” Bart Melek, head of global commodity strategy at TD Securities, told Bloomberg. “Certainly at Vienna, they’ve implied that they will be flexible. If the market rebalances, then we would expect somewhat looser rules.”
In addition, the WTI-Brent spread will “widen and encourage U.S. exports,” Yawger added.
The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, was 0.8% higher Monday as WTI futures increased 0.8% to $57.8 per barrel.
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