In a historic agreement, OPEC members have agreed to boost oil production after intense negotiations in Vienna on Jun 22. The members have concluded that there will be an increase in supply of about 1 million bpd from July, which would ease oil prices and stabilize the market. As the news was declared, U.S. crude futures rallied 0.4% to $68.38 a barrel, while Brent crude gained 0.2% to $74.86 per barrel on Jun 25.
World oil demand has approached 100 million barrels per day (MBD) for the first time. Per a report by ExxonMobil, energy demand is set to grow till 2040 by about 25%, driven by population growth, a stronger global economy and increased consumption by the emerging markets.
This year, oil prices are on the rise, touching almost $80 a barrel in May, and putting pressure on the global economy and oil importers. Sanctions on Iran and declining Venezuelan oil production have resulted in a decline in oil output.
It was in such a situation that the Trump administration requested Saudi-Arabia and other OPEC members to remove the production cap of 1.2 million bpd. Oil importers like China and India have also been complaining about the rising cost of oil imports and have exerted pressure. Hence Russia and Saudi Arabia along with other OPEC nations have come to a consensus on increasing production capacity by approximately 1 million bpd (read: Oil ETFs Plunge on Hopes of Output Boost).
The Saudi oil minister said that a supply deficit of 1.8 bpd is possible in the second quarter. Venezuela, Libya and Angola together have already cut 2.8 million bpd in recent months. Iraq believes that the real increase could be around 770,000 as most countries are not in a position to increase output immediately. So the present announcement will be just sufficient to meet the demand-supply gap and oil prices are therefore expected to remain steady this year.
Areas of Concern
Venezuela, on the verge of an economic collapse has drastically decreased its production and is not in a position to improve it any further. Libya, another OPEC member, has suffered due to internal conflict, which has reduced its production to 600,000-700,000 bpd, from 1 million bpd.
Escalating tension between the United States and China is another problem, which might increase crude oil prices. If Beijing implements a 25% duty on U.S. crude imports then American oil will become expensive (read: 5 Sector ETFs Most Exposed to Trade Tensions).
As OPEC members agree to boost production, let us look at oil ETFs that have gained this year.
ETRACS S&P GSCI Crude Oil Total Return Index ETN (OILX - Free Report)
The note is linked to the performance of the S&P GSCI Crude Oil Total Return Index and has amassed $16 million in its asset base. It has average expense of 50 basis points and an average traded volume of 630 shares. OILX has gained 20.7% on a YTD basis.
DB Crude Oil Long ETN (OLO - Free Report)
The note tracks the Deutsche Bank Liquid Commodity Index - Optimum Yield Crude Oil Excess Return. The note charges an annual fee of 75 basis points and trades an average daily volume of 3730 shares. Also, it has AUM of $7.1 million and has gained 20.3% on a YTD basis.
Invesco DB Oil Fund (DBO - Free Report)
The Invesco DB Oil Fund tracks the DBIQ Optimum Yield Crude Oil Index Excess. It has gathered an asset base of $579 million and has an average daily traded volume of 1.2 million. The fund charges n annual fee of 75 basis points. It has gained 17.5% on a YTD basis. (read: How to Build a Winning ETF Portfolio Amid Trade War Fears).
Credit Suisse X-Links WTI Crude Oil Index ETN
The note consists of unsecured debt securities that track the investment results of Bloomberg WTI Crude Oil Total Return Subindex. The note has an expense ratio of 0.55%. With an asset base of $41.3 million, the note has a daily trading volume of 860 shares. It has gained 15.8% on a YTD basis.
ProShares K-1 Free Crude Oil Strategy ETF (OILK - Free Report)
The fund provides total returns to the West Texas Intermediate crude oil futures markets. Annual expense is 65 basis points and AUM is $12.5 million. It has daily traded volume of 10,990 shares. The fund has returned 14.7% on a YTD basis.
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