Oil ETFs Rebound as Bargain Hunters Look to a Potentially Oversold Market
This article was originally published on ETFTrends.com.
Crude oil prices and commodity-related exchange traded funds popped Wednesday after the U.S. benchmark hit a 18-month low on Monday as traders looked back into a potentially oversold market.
On Wednesday, the United States Oil Fund (USO) , which tracks West Texas Intermediate crude oil futures, gained 3.4% and the United States Brent Oil Fund (BNO) , which tracks Brent crude oil futures, increased 3.6%. Nevertheless, USO was down 39.2% and BNO was 35.7% lower over the past three months.
Meanwhile, WTI crude oil futures rose 7.1% to $45.5 per barrel and Brent crude was up 6.5% to $53.7 per barrel on Wednesday. Crude oil prices have declined over 40% from the early October highs as concerns on the global supply glut dragged on prices.
Crude was also caught up on the general risk-off market sentiment as the U.S. government shutdown, rising interest rates and the trade war between the U.S. and China rocked the markets and exacerbated concerns over global growth.
Overextended Selling
“I think there is a little bit of over-extension to the downside linked to global market fears,” Olivier Jakob, analyst at Petromatrix, told Reuters.
Jakob argued that the outlook is not as weak as many may believe since the Organization of Petroleum Exporting Countries has revealed its intent to prop up the market, compared to the 2016 selling on a rising global supply glut.
OPEC and its allies like Russia have come to a decision to cut production in 2019, reversing its June decision to pump out more oil. The group plans to lower output by 1.2 million barrels per year next year.
“The last few days of selling pressure in the crude markets has felt less fundamentally driven and more a function of the overall market meltdown as increased equity volatility and growing macro concerns have weighed on a number of asset classes,” analysts at Tudor Pickering Holt & Co. said in research note Wednesday. “OPEC+ cuts in Q1 should move the market balance to undersupplied, and if the U.S. upstream sector cuts capital as investors hope, then the commodity should ultimately start to find support in the new year as U.S. growth fears are abated.”
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