United States Oil Fund LP (ETF) (NYSEARCA:USO) Busted By OPEC Bulge

United States Oil Fund LP (ETF) (NYSEARCA:USO) was falling on Friday as the world oil markets reacted to news of a bulge in OPEC oil production. At time of writing the ETF, which tracks the price of cruse, was down by close to 2 percent.
The fears of an increase in oil production in July came from a Reuters report. The news outlet, citing statistical work down by research firm Petro-Logistics, said that oil production in the Organization of Petroleum Exporting Countries was set to rise by 145,000 bpd. The firm says the rise in production will be driven by Saudi Arabia, the United Arab Emirates and Nigeria.
The forecast is significant because OPEC had been trying to raise oil prices by purposefully restraining production. There has been a lot of doubt about the ability of the alliance to do that, and Friday’s data appears to cast more doubt on the future of the cartel.

Oil prices keep falling

Petro-Logistics estimates the mount of oil that OPEC is producing by tracking oil tanker shipments. The method is far from perfect, but it yields a reasonably accurate idea of where oil production is at a point in time. Right now OPEC production appears to be rising. That comes at a time when production in the US also appears to be growing.

In recent weeks news that US crude oil stockpiles were shrinking caused the price of oil, and the United States Oil Fund LP (ETF) (NYSEARCA:USO), to increase broadly.

There will be a meeting of OPEC and non OPEC partner countries next week to discuss whether the cartel can continue to reduce production going forward. Oil bulls will be hoping that the group is able to convince members to engage in significant further cuts in oil production.

Don’t bet on the United States Oil Fund LP (ETF)

If you’re looking for a stable investment, the United States Oil Fund LP (ETF) (NYSEARCA:USO) is probably not your target. Some traders think that they can accurately predict the price of oil using technical analysis and other tools, but the global trends are much less stable and predictable than some seem to believe.

The United States Oil Fund LP (ETF) (NYSEARCA:USO) and other instruments like it, are there for investors who need specific sorts of exposure to the oil markets. They may need these instruments for hedging purposes, or to balance their portfolio in a specific way.

The world oil market has too many “swing” producers right now, and the geopolitical price drivers are ineffable.We don’t know how the Qatar crisis is going to shake out, and e certainly don’t know if the Chinese economy is heading for a debt fueled crash. All of these things are deeply important for the future price of oil.

That’s reason enough for any investor, or at least any with a smidgen of risk aversion, to keep away from these dangerous trading conditions.

All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
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