Crude ETFs Climb Amid Supply Cuts From Russia & Saudi Arabia

Crude oil and crude ETFs climbed on Tuesday, as traders were encouraged by supply cuts established by Saudi Arabia and Russia, overcoming some of China’s concerns about a global economic decline.

After starting the day lower, U.S. crude oil bellwether, Western Texas Intermediate (WTI), jumped nearly 2.5% or $1.81 per barrel on Tuesday, to reach $74.82 as of 130PM EST.

During the US trading session, Saudia Arabia and Russia promised to slash 1.5 million barrels of crude oil, a less sturdy US Dollar (USD), and a lighter economic calendar helped buoy WTI prices across the board.

The International Energy Agency (IEA) also suggested that oil demand from China and developed countries, alongside the most recent supply cuts, could hamper supply during the second half of 2023.

According to Reuters, though, sources were told that “top buyer China again requested less supply from the world’s biggest oil exporter, Saudi Aramco.”

Hedge funds and other money managers bought the equivalent of 47 million barrels in the six key petroleum futures and options contracts throughout the week ending July 3-4.

Records show an overall purchase of crude (+52 million barrels) that was divided into purchases of Brent (+25 million) and NYMEX and ICE WTI (+27 million), according to exchange and regulatory records.

Crude buying essentially reversed sales from the previous week after Saudi Arabia implied it would continue output limits of 1 million barrels per day from July through August.

Russia also pledged to curtail production by 0.5 million barrels per day in August to help overcome discontent and raise prices.

Crude Could Continue Moving Higher, Say Analysts

Some analysts are looking for higher prices in crude oil as well.

“What we’ve been waiting for for six months is finally beginning to play out. Inventories in oil are drying, Chinese demand is back to 15.9 million barrels per day, time spreads are tightening, all indications of a bull structure, said Jeff Currie, Goldman Sachs global head of commodities research, in an interview on CNBC.

However, Currie explained that oil’s hesitation to rise more robustly may be due to investor hesitation. He added, “The problem is investor length is running around 5% of max right now, in other words, this is an unloved rally that is not part of investors’ portfolio right now.”

The analyst feels that investors may be gun-shy after all the “false starts” in oil and other commodities but that there is potential to see a further rise in the price of oil and, therefore, potentially, oil ETFs.

Investors looking to use ETFs to purchase crude oil can look into the United States Oil Fund (USO)which is 2% higher today amid the rise in oil futures and the ProShares Ultra Bloomberg Crude Oil (UCO).

Meanwhile, short ETFs like the ProShares UltraShort Bloomberg Crude Oil (SCO) could benefit from continuing inflation and lower oil demand.

SCO is for savvy traders and investors and offers 2x daily short leverage to the broad-based Dow Jones-UBS Crude Oil Sub-Index, making it a powerful tool for individuals with a bearish short-term outlook for crude oil. Investors should note that SCO’s leverage resets daily, resulting in compounding returns when held for multiple periods. SCO can be a powerful tool for sophisticated investors but should be avoided by those with a low-risk tolerance or a buy-and-hold strategy.

For more news, information, and analysis, visit the Commodities Channel.