Forecasting Spring Action For Oil ETFs

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 rebounding nicely this week after sliding earlier this month. With spring approaching, commodities investors may want to give oil exchange traded products another look.

However, expanding U.S. stockpiles could depress further gains in the crude oil market. Inventories in U.S. tanks and terminals likely increased by 3 million barrels last week, potentially marking the fourth straight week of gains and the longest expansion since the first quarter of 2017, Bloomberg reports.

“However, U.S. tight oil production is still only 5% of the global oil supply. It is highly unlikely that U.S. oil production will be able to ever meet U.S. demand (currently over 17,000,000 barrels per day), much less supply the rest of the world,” reports ETF Daily News.

The Energy Information Administration calculates that daily output, which was the highest since 1972 last year, could hit a new record of 10.6 million barrels this year, the Wall Street Journal reports. The EIA even predicts the U.S. will become a net exporter by 2029, and if all other energy is included, in just four years.

Current OPEC compliance with production cut plans remains above their historical average, and it usually takes between two to three quarters for inventories to normalize after the cuts. While demand has yet to catch up to elevated supplies, rebounding economies in Europe and steady economic growth in the U.S. could prompt more upside for oil this year.