The Organization of Petroleum Exporting Countries renewed an agreement to diminish supplies in an attempt to put a dent into the global oil glut, but the pledge was not enough for oil exchange traded fund traders.
On Thursday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, plunged 4.3% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, plummeted 3.9%.
Meanwhile, WTI crude oil futures declined 4.4% to $49.1 per barrel and Brent crude decreased 4.1% to $51.8 per barrel.
The Energy Select Sector SPDR (NYSEArca: XLE), the largest ETF dedicated to energy equities, was also among the worst S&P 500 sector ETFs Thursday, falling off 1.8% on slipping oil prices.
OPEC renewed an agreement with a dozen other crude-oil producers to withhold supplies into March 2018 in an attempt to raise prices despite increasing output from U.S. shale oil producers, the Wall Street Journal reports. The agreement would maintain levels of production at about 1.8 million barrels per day lower than late last year, or about 2% of global oil supply being withheld.
“Nine months with the same level of production that our member countries have been producing at is a very safe and almost certain option to do the trick,” Saudi energy minister Khalid al-Falih told reporters at the cartel’s Vienna headquarters.
While U.S. output quickly declined along with falling prices in 2016, shale producers have quickly pumped out more this year on the modest price recovery. According to the U.S. Energy Information Administration, American oil output could hit a record high of 9.9 million barrels per day, or closely mirroring the level Saudi Arabia has limited itself to.
Technological improvements and greater efficiency has helped U.S. shale producers pump out crude oil at lower margins – some say it is now profitable at less than $50 per barrel. Additionally, companies are finding easy access to credit and private-equity firms have bought out struggling companies, which have kept production flowing.
Consequently, oil traders are wary that OPEC’s new pledge will do any real support to the depressed prices.
“It is a disappointment that OPEC hasn’t done more to balance the markets,” Olivier Jakob, energy markets analyst at Swiss consultancy Petromatrix, told CNBC. “A nine-month extension of the output cuts is already baked into prices. This shows there’s not much more OPEC can do.”
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