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WTI crude ETF United States Oil Fund LP (USO - Free Report) lost 3.1% on May 1, 2024 due to a slew of news. Global business activities are falling, leading to lesser demand for oil. Meanwhile, higher U.S. crude output and Israel-Hamas ceasefire talks boosted the chances of higher supplies. Both factors caused a slump in oil prices.
Notably, business activity in the U.S. manufacturing sector contracted in April and S&P Global US Manufacturing PMI edged down to 50.0 from 51.9 in March, ending a three-month streak of improving conditions.
On the other hand, U.S. crude production rose to 13.15 million barrels per day (bpd) in February from 12.58 million bpd in January in its biggest monthly increase since October 2021, the Energy Information Administration said. Expectations are growing that a ceasefire agreement between Israel and Hamas could soon be reached.
Now, where could oil go from here? Below we highlight a few factors that could benefit oil prices in the coming days. However, there are challenges and we’ll shed light on that area, too.
Global Policy Easing to Start by 2024-End?
On May 1, 2024, Fed Chair Jerome Powell assured market watchers that any future policy moves are unlikely to involve rate hikes and kept its benchmark interest rate unchanged within the range of 5.25%-5.50%.
But the Fed may start cutting rates from late 2024 as the ongoing high rates should start showing effects by then and control price inflation. There is currently a 37.7% chance of rates being cut by 25 bps by December and a 31.2% probability of the key rates falling by 50 bps by the end of 2024, per CME FedWatch Tool.
Meanwhile, ECB President Christine Lagarde has hinted that the euro zone's central bank is still likely to start reducing its deposit rate from a record-high 4% in June but has been cautious to keep its options open, going forward.
A recent Bank of Canada survey of market participants indicated that traders expect the central bank to embark on a prolonged series of rate cuts, starting this June and ending in late 2025. The Bank of Japan (BoJ) has ended eight years of negative interest rates recently.
The Bank of England (BoE) is also likely to start interest rate cuts in 2024 after inflation dropped to its lowest level in two and a half years in March. Financial markets now see just a 50% chance of a second BoE rate cut by the end of 2024 compared to the initial predictions of as many as six cuts.
If several nations jump on the bandwagon on rate cuts by 2024-end, global economic progress is likely to be seen. This, in turn, should boost oil demand as well as prices.
Geopolitical Escalations
Geopolitical tensions significantly influence oil markets. Events such as the conflict in Ukraine, Houthi attacks on vessels in the Red Sea, and recent escalations between Israel and Iran have been causing substantial disruptions in global oil supplies. Tensions are likely to subside soon due to interventions by the United States and other countries. However, as of now, wars in the oil-rich nations could put pressure on supplies and boost prices.
Replenishment of U.S. Strategic Petroleum Reserve
The Strategic Petroleum Reserve (SPR) serves as the emergency oil stockpile for the United States. However, even amid escalating global tensions, the levels of oil in the SPR are at their lowest in nearly four decades.
Notably, in 2022, the United States sold crude oil from the strategic reserves to bring stability to the market. Meanwhile, OPEC+ supply could fall 820 kb/d if voluntary cuts remain in place, per IEA. These factors should favor an oil price rally.
Wall of Worry in Oil Price Stability
Per IEA, non-OPEC+, led by the United States, is well-positioned to drive world supply growth through 2025. For 2024, global output is forecast to increase by 770 kb/d to 102.9 mb/d. Non-OPEC+ production will expand by 1.6 mb/d, while OPEC+ supply could fall 820 kb/d if voluntary cuts remain in place.
The growing thrust on energy transition is another negative for crude oil prices. The electric vehicle (EV) adoption could also lessen oil's demand. Electric car sales in 2023 were 3.5 million, which marked a 35% year-on-year increase.
However, EV sales are still showing less uptake than initially expected. The still-higher prices of EVs, poor resale values, and an infrastructure that is not yet strong enough may give crude oil a few more years of a favorable operating environment.
Oil ETFs in Focus
Apart from ultra-popular USO, investors can keep a close watch on other crude ETFs like Invesco DB Oil Fund (DBO - Free Report) , United States Brent Oil ETF (BNO - Free Report) , ProShares K-1 Free Crude Oil Strategy ETF (OILK - Free Report) and United States 12 Month Oil Fund LP (USL - Free Report) .
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Where Could Oil Go From Here? ETFs in Focus
WTI crude ETF United States Oil Fund LP (USO - Free Report) lost 3.1% on May 1, 2024 due to a slew of news. Global business activities are falling, leading to lesser demand for oil. Meanwhile, higher U.S. crude output and Israel-Hamas ceasefire talks boosted the chances of higher supplies. Both factors caused a slump in oil prices.
Notably, business activity in the U.S. manufacturing sector contracted in April and S&P Global US Manufacturing PMI edged down to 50.0 from 51.9 in March, ending a three-month streak of improving conditions.
On the other hand, U.S. crude production rose to 13.15 million barrels per day (bpd) in February from 12.58 million bpd in January in its biggest monthly increase since October 2021, the Energy Information Administration said. Expectations are growing that a ceasefire agreement between Israel and Hamas could soon be reached.
Now, where could oil go from here? Below we highlight a few factors that could benefit oil prices in the coming days. However, there are challenges and we’ll shed light on that area, too.
Global Policy Easing to Start by 2024-End?
On May 1, 2024, Fed Chair Jerome Powell assured market watchers that any future policy moves are unlikely to involve rate hikes and kept its benchmark interest rate unchanged within the range of 5.25%-5.50%.
But the Fed may start cutting rates from late 2024 as the ongoing high rates should start showing effects by then and control price inflation. There is currently a 37.7% chance of rates being cut by 25 bps by December and a 31.2% probability of the key rates falling by 50 bps by the end of 2024, per CME FedWatch Tool.
Meanwhile, ECB President Christine Lagarde has hinted that the euro zone's central bank is still likely to start reducing its deposit rate from a record-high 4% in June but has been cautious to keep its options open, going forward.
A recent Bank of Canada survey of market participants indicated that traders expect the central bank to embark on a prolonged series of rate cuts, starting this June and ending in late 2025. The Bank of Japan (BoJ) has ended eight years of negative interest rates recently.
The Bank of England (BoE) is also likely to start interest rate cuts in 2024 after inflation dropped to its lowest level in two and a half years in March. Financial markets now see just a 50% chance of a second BoE rate cut by the end of 2024 compared to the initial predictions of as many as six cuts.
If several nations jump on the bandwagon on rate cuts by 2024-end, global economic progress is likely to be seen. This, in turn, should boost oil demand as well as prices.
Geopolitical Escalations
Geopolitical tensions significantly influence oil markets. Events such as the conflict in Ukraine, Houthi attacks on vessels in the Red Sea, and recent escalations between Israel and Iran have been causing substantial disruptions in global oil supplies. Tensions are likely to subside soon due to interventions by the United States and other countries. However, as of now, wars in the oil-rich nations could put pressure on supplies and boost prices.
Replenishment of U.S. Strategic Petroleum Reserve
The Strategic Petroleum Reserve (SPR) serves as the emergency oil stockpile for the United States. However, even amid escalating global tensions, the levels of oil in the SPR are at their lowest in nearly four decades.
Notably, in 2022, the United States sold crude oil from the strategic reserves to bring stability to the market. Meanwhile, OPEC+ supply could fall 820 kb/d if voluntary cuts remain in place, per IEA. These factors should favor an oil price rally.
Wall of Worry in Oil Price Stability
Per IEA, non-OPEC+, led by the United States, is well-positioned to drive world supply growth through 2025. For 2024, global output is forecast to increase by 770 kb/d to 102.9 mb/d. Non-OPEC+ production will expand by 1.6 mb/d, while OPEC+ supply could fall 820 kb/d if voluntary cuts remain in place.
The growing thrust on energy transition is another negative for crude oil prices. The electric vehicle (EV) adoption could also lessen oil's demand. Electric car sales in 2023 were 3.5 million, which marked a 35% year-on-year increase.
However, EV sales are still showing less uptake than initially expected. The still-higher prices of EVs, poor resale values, and an infrastructure that is not yet strong enough may give crude oil a few more years of a favorable operating environment.
Oil ETFs in Focus
Apart from ultra-popular USO, investors can keep a close watch on other crude ETFs like Invesco DB Oil Fund (DBO - Free Report) , United States Brent Oil ETF (BNO - Free Report) , ProShares K-1 Free Crude Oil Strategy ETF (OILK - Free Report) and United States 12 Month Oil Fund LP (USL - Free Report) .