How To Trade Oil With ETFs After Surging U.S. Output

Pouring cold water on hopes building on the OPEC output cut deal and the expected stabilization in the oil patch, U.S. crude production is marching ahead. The Department of Energy showed on March 8, 2017 that crude supplies have increased 8.21 million barrels from the previous week to 528.4 million barrels. This was the highest level since record keeping started in 1982. The addition to storage marked a four times increment to what analysts projected.

Weekly figures also indicate that U.S. oil production is on its way toward 9.1 million barrels a day, the highest level in over a year. This spurt in inventory shoved oil prices southward to an almost three-month low $50-level on higher trading volumes. It was the largest daily percentage drop in oil prices since February 2016. WTI crude ETF, the United States Oil ETF (NYSEARCA:USO), lost over 5.3% on March 8 while Brent crude oil ETF, the United States Brent Oil ETF (NYSEARCA:BNO),shed more than 4.8%.

This was expected. The U.S. rig count has steadily been trending upward. Total rig count in North America - the U.S. and Canada - for February 2017 was 1,086. The reported figure was higher than the January 2017 count of 985 as well as the year-ago level of 743. Activity in the Permian basin gained impetus in recent times.

As per market watchers, U.S. capital markets still have the option to provide loans to drillers, averting a crash in output. Added to this, President Trump is also in favor of higher shale oil production.

What Lies Ahead?

Things do not look too promising for oil prices right now. On March 7, Saudi Oil Minister Khalid al-Falih signaled that the country would only care for OPEC's intervention in markets for a "restricted period of time" and would not "underwrite the investments of others" at their "own expense and long-term interests."
Investors should note that OPEC had decided to cut production by about 1.2 million barrels a day by January. Plus, on December 10, OPEC cut the first deal with non-OPEC since 2001 to reduce output this year. These pacts were formed for six months.