U.S. crude oil output is picking up pace as prices stabilize. However, the increased supply coming out of hydraulic fracturing techniques could cap gains in energy-related ETFs.
The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, has rebounded 13.7% over the past three months as WTI crude oil futures strengthened to $55.1 per barrel.
However, further gains will be hard to come by as U.S. production threatens to undermine the Organization of Petroleum Exporting Countries’ attempt to cut down the global supply glut. According to the International Energy Agency, the U.S. is expected to account for more than 80% of global oil production growth in the next decade and it will produce 30% more gas than Russia by that time, Reuters reports.
“This has implications on the oil markets, prices, trade flows, investment trends and the geopolitics of energy,” IEA head Fatih Birol said at a U.N. climate conference.
Hydraulic fracturing or fracking technology could help the U.S. become the “undisputed leader of oil and gas production worldwide,” Birol added.
Oil prices have already been slipping in recent sessions due to concerns over the U.S.’s ability to increase production through its nascent fracking industries. The U.S. Energy Information Administration revealed domestic crude inventories C-STK-T-EIA rising for a second week in a row after building by 1.9 million barrels in the week ended November 10 to 459 million barrels. Gasoline stockpiles were also on the rise.
USO fell 2.8% over the past week.
Over the short-term, Birol projected that oil markets could rebalance in 2018 if oil demand remained “more or less” as robust as it is now and if OPEC maintains its export cuts – the oil cartel and its allies are expected to extend cuts beyond March to bring down the global oil supply glut.
“It is widely believed that OPEC and non-OPEC nations will roll over their production until (end) 2018,” PVM Oil Associates analyst Tamas Varga told Reuters. “If they don‘t, or if the period will be shorter than nine months, I think we will see even lower prices. Brent would break back below $60 a barrel.”
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