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, each jumped more than 8% in what could be the latest sign that oil is mounting a credible rebound.
Crude’s recent rally is chasing bearish traders from what was previously one of this year’s worst-performing commodities.
While the Organization of Petroleum Exporting Countries are skeptical that demand growth can put a dent into the ongoing supply glut, the oil cartel has made steps to cut down supply to bolster prices. OPEC has already promised to curb production by 1.2 million barrels per day between January this year and March 2018.
“As pessimism over oil dissipates and investors flirt with $50 a barrel again, short-sellers are getting out of the way,” reports Jessica Summers for Bloomberg. “Hedge funds are the most upbeat about West Texas Intermediate crude in three months after bets on declining prices shrank. Meanwhile, signs that the shale boom is slowing and the market is moving closer to balance set the mood for futures to jump 8.6 percent last week.”
Oil traders are concerned over how fast U.S. shale oil producers will increase production to capture the rising prices. Rig counts have recently ticked higher and with credit and earnings issues improving for some U.S. shale drillers, those companies may seize the opportunity to exploit higher pricing in the near-term.
Potential traders should keep in mind that these funds will try to seek their leveraged/inverse return for a single day and do not seek to achieve their stated investment objective over a period greater than one day.
“Hedge funds increased their WTI net-long position — the difference between bets on a price increase and wagers on a drop — by 11 percent to 238,501 futures and options over the week ended July 25, data from the U.S. Commodity Futures Trading Commission showed. Shorts slipped by 22 percent and stood at less than half their level at the end of June. Longs fell 0.2 percent,” according to Bloomberg.
For more information on the crude oil market, visit our oil category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.