The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, jumped more than 8% last week, but the bellwether oil exchange traded product and its rivals face another test this week courtesy of the Organization of Petroleum Exporting Countries (OPEC).
For its part, OPEC remains concerned about the level of production by U.S. shale producers and the cartel is urging its U.S. rivals to pare output to support prices. According to the Energy Information Administration, crude oil product could hit 9.9 million barrels per day in 2018, which surpasses the prior high reached in 1970 of 9.6 million barrels per day.
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“Reuters reports that the agenda calls for just a three-hour meeting, which by OPEC standards is very short. If the meeting is to be so short, then all participants must already be on board with the extension, Reuters said,” according to OilPrice.com. “Indeed, both the secretary-general of OPEC, Mohammed Barkindo, and Saudi Arabia’s Energy Minister Khalid al-Falih, have said in recent weeks that they are seeking to reach consensus among all OPEC members on the extension prior to the November 30 meeting.”
Current OPEC compliance with production cut plans remains above their historical average, and it usually takes between two to three quarters for inventories to normalize after the cuts. While demand has yet to catch up to elevated supplies, rebounding economies in Europe and steady economic growth in the U.S. could at least keep oil prices steady around current levels in the second half of 2017.
“Earlier reports have reinforced the doubt about Russia’s stance on the extension, but it seems most observers agree that there will be an extension—just maybe not one that is nine months long,” reports OilPrice.com. “Russian oil producers, according to these reports, are against a long extension because stronger oil prices will strengthen U.S. shale production, and that’s not something either OPEC or Russia would like to see happening.”
While OPEC member states have moved to cut production, expectations of continued U.S. shale production remain a deterring factor. Nevertheless, recent U.S. inventory drawdowns, which if sustained, could support the current price levels.
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