Despite crude oil prices reaching their highest level in six years, the United States Oil ETF (NYSE: USO) is down 1.9 percent on Tuesday morning.
What went wrong? In early trading, West Texas Intermediate oil futures hit a high of $76.98 before falling to $75.15. The price of crude oil has reached its highest level since November 2014.
Why It’s Crucial: The surge in crude oil prices comes after OPEC+ talks to expand global supply beginning in August were postponed indefinitely due to a lack of agreement.
Summer travel and economic reopenings are driving up oil prices, which are up about 60% year to date. Travelers in the United States faced a national average gasoline price of more than $3 a gallon on July 4 weekend, the highest level in over seven years.
Saudi Arabia suggested a plan to enhance OPEC+ oil supply, but it was reportedly rejected by the United Arab Emirates. Experts predict that without a settlement, present output quotas would continue in place for the time being, potentially resulting in a supply shortage and increased oil and gasoline prices in the near future.
OPEC took unprecedented precautions during the epidemic in April 2020, shutting down roughly 10 million barrels per day of crude oil output.
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Next Steps: Oil demand was reduced due to global economic downturns and travel restrictions, causing WTI futures prices to fall below $0/bbl for the first time in history. However, the oil market imbalance has now swung in the opposite direction, making supply the main issue in the near future.
Although OPEC+ production restrictions have been lifted in recent months, it is still around 5.8 million barrels per day below pre-pandemic levels.
“This deadlock will result in a temporary and much larger-than-expected deficit, which will likely fuel further higher prices in the short term. The summer breakout in oil prices is expected to gain traction quickly “In a letter to investors, TD Securities stated.
According to Reuters, some OPEC+ sources suggest the group will meet again in the coming days and eventually agree on a production increase in August. Their OPEX+ sources, on the other hand, claim that there will be no production increase in August.
Benzinga’s Opinion: Investors who believe the crude oil rise will continue unless OPEC+ agrees to increase output can buy the USO fund to bet directly on crude oil futures prices, or they can buy popular oil stock ETFs like the VanEck Vectors Oil Services Etf (NYSE: OIH) and the Energy Select Sector SPDR Fund (NYSE: XLE).
On Tuesday morning, all three funds were trading lower, presumably indicating that the market is pricing in a significant OPEC+ production increase in the coming weeks.
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