Oil ETFs should not count on a bump from the drop off in oil supply out of Iran due to U.S. economic sanctions as the Organization of Petroleum Exporting Countries quickly stepped in to fill in the gap, raising global supply to a record high.
Over the past month, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, advanced 3.4% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, increased 7.3%.
WTI crude was trading around $69.0 per barrel and Brent crude was hovering around $78.0 per barrel on Friday.
While oil prices strengthened in recent weeks on the lower supply outlook out of Iran, investors should keep in mind that OPEC can step in at anytime to fill in the gap. The International Energy Agency said crude oil output among OPEC members surged by 420,000 barrels per day to average 32.63 millions a day in August, the Wall Street Journal reports.
Rise in Production
The rise in production was the cartel’s biggest month-over-month rise in over two years and brought the group’s total supply to a nine-month high. The spike in output also brought total global supply to a record 100 million barrels a day last month.
The increase in supply from OPEC “far outweighed losses from Iran ahead of U.S. sanctions,” according to the agency.
Furthermore, OPEC partner producers, like Russia, have already agreed in late June to loosen requirements on production caps implemented at the start of 2017, slowly raising production by as much as one million barrels per day.
Iran cut its crude production 150,000 barrels a day in August month-over-month to 3.63 million barrels a day, and exports slipped by 280,000 barrels a day to 1.9 million barrels a day.
Oil traders were eyeing a cutback in Iran’s oil supply after President Donald Trump in May pulled the U.S. from a 2015 international agreement to reduce Iran’s nuclear program, which paved the way to reinstate economic sanctions on the Middle Eastern oil producer. Measures will go into effect in November.
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