Declining production in China, one of the world’s largest oil consumers, could be a catalyst for ETFs such as USO. In addition to China, supply from the Asia-Pacific region is expected to fall over the next several years due to poor oil infrastructure investment.
“The land rig count in the U.S. lower 48 has risen around 45% since the end of 2016, contributing to a rebound in U.S. crude production to over 9.5 million barrels a day (mmbbl/d) from a trough of about 8.4 mmbbl/d in July 2016. We continue to expect U.S. production growth to remain robust in the second half of 2017 based on the roughly two- to four-month lag between spudding shale wells and production,” according to Fitch.
Oil traders should be aware that the holdings of ETFs like USO’s underlying portfolio includes front-month WTI future contracts, and the oil futures market is currently in a state of contango. Consequently, USO could experience a negative roll yield when rolling a maturing futures contract for next month’s contract.
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