Inverse Crude ETFs Surge as Drones Strike Saudi Oil Facilities

 

Crude oil ETFs are pulling back on Monday from oil’s recent tear higher, amid an oil strike and news that the unexpected OPEC+ move from last week and the resulting oil price spike revealed that the alliance is still in control of the oil market, according to Vitol Group, the world’s largest independent oil trader.

Oil prices spiked higher Monday before selling off as Saudi Arabian oil facilities were targeted by drone strikes just days after the largest crude exporting nations in the world said they would not increase output.

“The market is telling us that OPEC+ have control,” Mike Muller, the head of Vitol’s operations in Asia, said at the Daily Energy Markets Forum hosted by Gulf Intelligence on Sunday.

“We’re going to get a stock-draw that is going to accelerate through the second quarter and that’s why the market is doing what it’s doing,” Vitol’s executive said.

West Texas Intermediate crude oil, the United States benchmark, has been steadily climbing since it reached unprecedented negative territory last April. Crude was approaching the highs of January 2020, near $70 a barrel, before it was rebuffed just below $68 on Monday.

OPEC+ Keeping Production Steady

Last week, the OPEC+ group fueled the market higher when it elected not to lift collective crude oil production from April, leaving only small exemptions to Russia and Kazakhstan. Russia and Kazakhstan are still permitted to increase their respective production by 130,000 bpd and 20,000 bpd respectively in April.

The market was looking for Saudi Arabia to reverse its extra cut and the group to elevate production by as much as 500,000 bpd. Saudi Arabia, however, is keeping its extra 1-million-bpd limit in place into April.

It looks like Saudi Energy Minister, Prince Abdulaziz bin Salman, was right when he said more than two weeks ago: “those who are trying to predict the next move of OPEC+, to those I say, don’t try to predict the unpredictable.”

The market and analysts were surprised by the OPEC+ decision last week, with crude experts noting that the coalition is looking to limit the market, predicting that U.S. shale will not respond with surging production to oil prices at $65.

However, Vitol’s Muller says that American oil production is unlikely to rebound to the levels from 2019 soon.

“U.S. rig counts are still nowhere close to supporting the U.S. returning to anywhere like the 13 million barrels a day we closed 2019 at,” he said on the online webinar.

Crude ETFs declined amid the news, with the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil (UCO) both dropping, while inverse oil ETFs like the ProShares UltraShort Bloomberg Crude Oil (SCO) surged.

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