Oil exchange traded products, including the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, rallied Tuesday amid signs that demand is improving, but oil could use some help from a major producer of the commodity. And no, that producer(s) is not the Organization of Petroleum Exporting Countries (OPEC).
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.
“Rising supply from the U.S. and from other producers outside of the deal, as well as recovery of production in exempt OPEC members Libya and Nigeria, have been offsetting much of the OPEC/non-OPEC production cuts,” reports OilPrice.com.
The Permian Basin will be a key factor in the growth of U.S. oil production. Of the 940 oil rigs in operation, about 377 are in the Permian Basin. Many oil producers have also decided to drill but not complete wells in the region due to minor transportation constraints, which leaves a lot of untapped potential on the ground.
“But with strong oil demand growth, summer demand, and Brent futures flipping to backwardation, the OECD commercial stocks have started to draw down faster in the summer. Over the past five months, OECD commercial stocks have dropped by 130 million barrels,” according to OilPrice.com.
Related: Energy ETFs Are Back on Trend
Declining prices in recent years have prompted scores of major oil producers to rein in capital spending. Technological improvements and greater efficiency has helped U.S. shale producers pump out crude oil at lower margins – some say it is now profitable at less than $50 per barrel. Additionally, companies are finding easy access to credit and private-equity firms have bought out struggling companies, which have kept production flowing.
Additionally, the ETFS Bloomberg Energy Commodity Longer Dated Strategy K-1 Free ETF (NYSEArca: BEF) tries to provide long-term capital appreciation designed to exceed the performance of the Bloomberg Energy Index 3 Month Forward Index, which tracks movements in the prices of rolling positions in a basket of energy commodity futures with a maturity between 4 and 6 months.
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