Oil prices were under pressure, falling over 3% last week despite the Fed’s decision to keep its monetary stimulus intact. The bearish trend is likely to continue this week as well on receding fears of the Middle East supply disruption, reduced prospect of the U.S. led military strike against Syria and the Iran talks (read: Oil ETFs Jump on Syria Turmoil).
Production in Libya is back on track and recovered to nearly 40% of its pre-war capacity. Oil production is expected to reach 700,000 barrels per day, up from the current level of 243,000 barrels per day.
Iran Talks Ahead?
The world leaders will gather at the UN general assembly in New York this week. Speculations over direct talks between the President of the U.S. and Iran at the meeting are mounting. The possible meeting would be the first since the 1979 revolution, and could ease the decade-long diplomatic tension between the two nations.
Iranian President Hassan Rouhani is seeking smoother relations with the West. In an interview last week, the President signaled that Iran would not develop any nuclear weapons if the U.S. offers some relief on international sanctions that has curtailed its oil exports and upset the economy for quite some time (read: 3 Country ETFs to Buy on an Oil Surge).
The possible talks could be a turning point in the U.S.-Iranian relations and help to ease the tension in the Middle East. However, major questions remain on whether Iran would accept the U.S. proposal of curbing uranium enrichment and closing down the underground Fordo nuclear facility.
As such, investors should closely monitor the movements in the oil funds irrespective of whether the crisis in Iran leads to meaningful negotiations or comes up with a new story. Below, we highlighted the three ETFs that would be impacted most by the U.S.-Iran talks (see: all the energy ETFs here):
United States Oil Fund (USO)
This is the most popular and liquid ETF in the oil space with AUM of over $1.4 billion and average daily volume of over 6.1 million shares. The fund seeks to match the performance of the spot price of light sweet crude oil West Texas Intermediate (WTI). The ETF has 0.74% in annual expenses.
The ETF lost over 1.4% in the last five trading sessions but is up nearly 11.7% so far this year.
United States Brent Oil Fund (BNO)
This fund provides direct exposure to the spot price of Brent crude oil on a daily basis through future contracts. It has amassed $42.7 million in its asset base and trades in moderate volume of roughly 64,000 shares a day (see more in the Zacks ETF Center).
The ETF charges 96 bps in annual fees and expenses. BNO lost about 2.3% in the trailing five days while it is up over 3% in the year-to-date period.
PowerShares DB Oil Fund (DBO)
This product provides exposure to crude oil through WTI futures contracts and follows the DBIQ Optimum Yield Crude Oil Index Excess Return. The fund sees solid average daily volume of more than 235,000 shares and AUM of $366.3 million. It charges an expense ratio of 79 bps.
DBO lost less than 1% in the past five trading sessions while it is up around 6% in the year-to-date period.
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Read the analyst report on USORead the analyst report on BNORead the analyst report on DBOZacks Investment Research
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- Oil, Gas, & Consumable Fuels