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ETF News And Commentary

Oil prices rebounded strongly on Monday as members of the Organization of the Petroleum Exporting Countries (OPEC) met in Algeria to discuss oil price control. The meeting is scheduled to end tomorrow. Rising expectations of a production freeze led WTI crude and Brent crude to gain 3.2% and 3.1% to $45.93 per barrel and $47.35 a barrel, respectively.

However, volatility level in oil prices also jumped significantly following uncertainties regarding the outcome of the meeting. While the CBOE Crude Oil Volatility Index (OVX) rose 2.3% yesterday, it jumped 9.5% over the past five trading sessions.

Will the Deal Happen?

The oil minister of Algeria, Noureddine Bouterfa indicated that a deal related to fixing a production limit could be reached this week. In the absence of a deal, oil could slump back to as low $30 per barrel. Oil prices witnessed a high level of volatility since the dates of the meeting were revealed in August. Statements from several representatives of oil producing countries were the main reasons behind this (read: Should You Buy Oil ETFs Ahead of the OPEC Meet?).

Separately, officials from Saudi Arabia said that they did not expect several prominent oil producing countries to reach an agreement during the meeting. Reportedly, Saudi Arabia indicated that it will curtail crude production only if its major OPEC rival, Iran freezes its production at its current level of 3.6 million barrels per day (BPD). Iran’s current production level is still below its target of 4 million bpd, which may stop the country from agreeing to a freeze (read: ETFs to Watch as IEA Forecasts Weaker Global Oil Demand).

Meanwhile, Russia has reportedly signaled that it will participate in a production freeze if OPEC members unanimously agree to reduce and freeze production to control the supply glut. Currently major oil producers are pumping at a record level. In this scenario, some analysts see little hope of a deal coming through at the ongoing meeting and believe OPEC will require more time to implement any such deal.

Investors Remain Worried

Rising uncertainties are negatively impacting investors’ sentiment. The U.S. Commodities Futures Trading Commission cited that bets on bearish oil prices surged 50,558 during the week ending Sep 20, which is the highest in history. Moreover, net-long positions slumped 28% to a one-and-half month low level of 147,467, indicating rise in concerns among investors (read: Profit from Wall Street Sell-Off with These Inverse ETFs).

Though there is enough doubt over prospects for the deal at this meeting, the situation may force OPEC members to come to an agreement in the immediate future. With major oil producing nations already producing at a record level, it may lead the crude to hit lows if OPEC fails to come out with an effective solution to control the supply glut. Thus a production freeze is still in the cards.

Oil ETFs in Focus

The above discussion indicates that the fate of oil in the coming days will largely depend on whether major oil producers show urgency to control oil prices. The timing of the deal will also play an important role in oil prices movement in the near future. In this respect, oil ETFs will be on investors’ radar as they will closely watch the outcome of the meeting in Algeria (read: 3 Energy ETFs at 52-Week Highs on Huge Inventory Drop).

Though United States Oil (USO - ETF report) that seeks to track the performance of WTI light, sweet crude oil rose 2.4% yesterday, it lost 3.9% over the past one month. Another fund that follows the performance of WTI crude oil futures, iPath S&P GSCI Crude Oil TR ETN (OIL - ETF report) rose 1.8% yesterday but lost 4.8% over the past one-month. Separately, Brent crude oil’s performance tracking ETF, United States Brent Oil Fund (BNO - ETF report) lost 4.6% in the trailing one-month period despite rising 2.1% on Monday.

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