Supply-Demand Scenario Could Benefit Oil ETFs

By CommsMEA

The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, are trading higher to start September and could accrue more gains thanks to potentially favorable supply/demand dynamics.

While crude oil prices have pulled back from three-and-a-half year highs as major global oil producers sought to raise output, the oil market still found support from geopolitical risk to supply in Iran. Observers anticipated renewed U.S. sanctions to stifle the Middle Eastern countrys crude exports in the months ahead.

Weve sort of achieved [a recovery to the $70]level probably a little faster than we thought we would have relative to declines in Venezuela and Mexico and parts of China and so the production side of the equation has actually rolled over a little faster than we thought it would, said Robert Raymond, investment strategist at hedge fund RCH Energy, in an interview with CNBC.

Recent Data

In its latest report, the Energy Information Administration revealed that domestic crude supplies fell by 4.3 million barrels for the week ending Aug. 31, but gasoline stockpiles climbed by 1.8 million barrels, which missed expectations. According to some market experts like Tim Clark, President of Emirates, oil prices should be seeing steeper declines.

The Organization of Petroleum Exporting Countries (OPEC) spare capacity, which measures their bandwidth to ramp up production to cushion price fluctuations, is below 3 percent of total global demand. Lower spare production levels restricts how able OPEC is to respond to spiking prices, according to CNBC.

Other factors contributing to oils surge this year was the U.S. exploring the possibility of tapping into their emergency reserves to stymie disruptions in oil supply, notably the slashing of Iranian oil imports. The U.S. is currently pumping oil at record levels of around 11 million barrels per day.

Oil demand growth is expected to rise by 1.64 million barrels a day to 98.83 million barrels a day this year, according to OPEC estimates. It should rise again to reach 100.26 million barrels a day in 2019, reports CNBC.

This article provided by NewsEdge.