Crude ETFs Surge As Russia Agrees To Production Compromise

Crude oil and crude ETFs are surging on Tuesday, and energy ETFs are also making big gains thanks to moves from Chevron and Exxon.

U.S. oil futures rocketed 5% to break above $50 per barrel for the first time since February, as the Energy Select Sector SPDR Fund (XLE) climbed 4.5%, as Chevron and Exxon gained over 3% apiece, amid OPEC and Russia reportedly reaching a deal on an oil production plant.

West Texas Intermediate crude oil tagged $50.05 per barrel before retreating back below the key $50 level, while international benchmark Brent crude was trading at $52.80 after several reports arose that Russia had accepted a compromise to stall on requesting an additional increase next month. The oil giant was pushing for a 500,000-bpd production increase in February.

“An informed source just told me that it appears that #Russia has agreed that there won’t be any increase of 500 thousand bpd for the month of February, but, not the cessation of increase for the month of March,” oil journalist Reza Zandi tweeted early on Tuesday, ahead of the second day of the online meeting of the Joint Ministerial Monitoring Committee (JMMC).

Russia and the United Arab Emirates had been in favor of the increase, standing opposed to the other OPEC+ countries, who felt that the spiking number of coronavirus infections, along with fresh lockdown measures throughout the globe, made it more prudent to hold off on ramping up production.

The delay will not last forever though, as Russia reportedly expects to increase output in the following month.

Amena Bakr, Deputy Bureau Chief & Chief OPEC Correspondent at Energy Intelligence, tweeted on Tuesday, “According to 2 informed sources: Russia will accept a one month rollover provided there will be an increase in March.”

Crude ETFs like the United States Oil Fund (USO) spiked 4.85% amid the news, while the ProShares Ultra Bloomberg Crude Oil (UCO) rocketed nearly double that amount: 9.20%.

Oil analysts seemed surprised and excited by the move as investors appeared.

“A proposed unilateral cut by Saudi Arabia from February is a groundbreaking statement that shows the oil giant is not only ready to bite the bullet and keep taps tight, but it also recognizes the short-term demand risk and is ready to protect its export prices by tightening supply,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy, in emailed commentary.

“Compared to the Saudi initiative, Russia seems to be in a different game,” he said. “It’s hard to see a deal where non-compliant Russia increases its output, while by-the-rules player Saudi Arabia makes up for it.”

For investors looking for other crude ETFs to play the run-up in oil, which has been fairly steady since November, the United States 12 Month Oil Fund (USL) and the iPath Pure Beta Crude Oil ETN (OIL) are two other funds to consider.

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