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, are up 3.1% and 2%, respectively, to start 2018.
Over the past month, the gains for those oil exchange traded funds are even larger. BNO is higher by almost 12% over that period while USO is up 10.6%. However, there are some factors that could pressure prices this year.
Further gains will be hard to come by as U.S. production threatens to undermine the Organization of Petroleum Exporting Countries’ attempt to cut down the global supply glut. According to the International Energy Agency, the U.S. is expected to account for more than 80% of global oil production growth in the next decade and it will produce 30% more gas than Russia by that time, Reuters reports.
In recent months, production declined in OPEC members Saudi Arabia, United Arab Emirates and Venezuela, but output topped a post-Soviet era record in Russia last year. Russia is expected to continue pumping to take advantage of rebounding prices.
“The question is, what might be a trigger and how sharp a fall will it be. We see a strong case for the correction to be a gradual cascading than a sudden downshift because of the numerous geopolitical factors at play. These are slow to pan out and not easy to rationalize or discount,” OilPrice.com reports, citing Vanda Insights.
For its part, OPEC remains concerned about the level of production by U.S. shale producers and the cartel is urging its U.S. rivals to pare output to support prices. According to the Energy Information Administration, crude oil product could hit 9.9 million barrels per day in 2018, which surpasses the prior high reached in 1970 of 9.6 million barrels per day.
Hedge funds and other professional speculators recently boosted their long exposure to oil and other energy commodities.
“Net long positions in WTI dropped by 6 million barrels to 455 million barrels in the week to January 2–down from a record 461 million barrels the week before. Money managers boosted their net longs in heating oil and diesel fuel to records, as middle distillates in the U.S. are below the seasonal average, and the extreme cold in the eastern U.S. is further expected to tighten middle distillate supplies,” according to OilPrice.com.
For more news on oil ETFs, visit our oil category.