Crude Oil ETFs Plummet amid IEA Report, Russia Tensions

Crude oil and crude ETFs tumbled more than 8% on Thursday after U.S. crude stockpiles crested over half a billion barrels and the International Energy Agency said global supplies are plentiful. Meanwhile, U.S. tensions with Russia mounted.

After oil futures in New York slipped 0.3% on Wednesday, closing out the longest stretch of declines in more than six months, WTI crude oil, the U.S. benchmark, dropped as much as $6.60 a barrel, or 10.24%, after a U.S. government report revealed that domestic oil supplies climbed for a month straight.

Investors sentiment was also dragged down by news from the IEA that oil markets are actually not on the verge of a new price super-cycle, as previously posited.

Finally, the Kremlin has reacted angrily to President Biden’s remarks that Russian leader Vladimir Putin is ‘a killer’, describing the comment as unprecedented and stating that the relationship between the two countries is ‘very bad’.

The news rattled crude ETFs too with the United States Oil Fund (USO) sinking 8.25% while the ProShares Ultra Bloomberg Crude Oil (UCO) plummeted 14.84%.

For the inverse crude oil trader, the news was welcomed, as ProShares UltraShort Bloomberg Crude Oil (SCO) surged 15.53%.

Late in the session, prices mitigated some of their worst losses alongside a weaker dollar, after the Federal Reserve continued to project near-zero interest rates through 2023 at least.

“We’re still working through the ramifications of the freeze-off and it’s going to cause odd storage levels in different locations,” said Quinn Kiley, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. At the same time, “there’s the overhang of spare capacity from OPEC+.”

OPEC+ output cuts and vaccine breakthroughs have spurred a strong rise in oil this year, but prices have faltered of late as the demand rebound has been slower and supply risks continue. While consumption is robust in some regions such as the United States, parts of Europe are struggling.

OPEC and its allies have been allowing this rise, according to analysts, and the cartel could quickly deploy its spare capacity to limit oil price rallies if desired, the IEA said. In another report, the IEA noted that demand won’t return to pre-virus levels until 2023.

Last month, crude oil saw a number of refinery outages due to the unusual cold weather in Texas, which likely spurred a faster recovery in U.S. crude production.

Meanwhile, crude processing at refineries ticked higher last week, with many of the plants impacted by the freeze coming back online, EIA data showed. Gasoline and distillate supplies also climbed.

“We are more or less returning back to normal here,” said Tom Finlon of Brownsville GTR LLC, a trading and logistics firm based in Houston. “Production of gasoline versus demand and production of distillate versus demand should be on a fairly even keel going forward.”

Investors interested in oil ETFs can explore the United States 12 Month Oil Fund (USL) and the iPath Pure Beta Crude Oil ETN (OIL).

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