The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, continues ascending to multi-year highs and is up more than 6% just this month. Some oil market observers believe the commodity can continue surging.
Year-to-date, USO is higher by nearly 20%. 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.
In fact, oil expert Tom Kloza is not ruling out a return to $100 per barrel.
“The Oil Price Information Service [OPIS] global head of energy analysis blamed fresh geopolitical tensions for his bullish forecast — citing a potential U.S. military response if Iran resumes its nuclear program, Venezuela’s oil production nose diving and ‘spectacular’ global demand,” reports CNBC.
More Upside Ahead for Oil?
OPEC’s supply cut appears to be working because prices are rising at a time when U.S. oil put is reaching near record levels and continuing to rise. U.S. shale producers are likely to keep pumping at record levels as prices rise to exploit spreads between West Texas Intermediate and Brent prices.
Related: 4 Energy ETF Opportunities as Sector Plays Catch Up
Advances in U.S. shale oil production technologies are contributing the to supply surplus and weighing on any oil price gains. It has become much cheaper for the upstart U.S. shale producers to extract oil out of the ground, sparking U.S. oil output to its highest levels since the 1970s.
“Kloza believes there’s little to prevent Brent oil from reaching beyond the range of $80 a barrel. He suspected crude will trail behind Brent prices due to lower prices in the actual shale oil fields,” according to CNBC.
The expanding global economy has increased demand for commodities and drawn down oil inventories.
Kloza notes there’s a 50-50 chance that gas prices reach $3 per gallon on an average basis across the U.S. this summer, which could put pressure on the White House to react. Investors have pulled $434.49 million from USO this year.
For more information on the oil market, visit our energy category.