Strong USD, Weakening Market Sentiment Drag Oil ETFs Lower
This article was originally published on ETFTrends.com.
Crude oil prices and related exchange traded funds slipped Friday as weakening market sentiment and a strengthening U.S. dollar pressured the energy market.
On Friday, the United States Oil Fund (USO) , which tracks West Texas Intermediate crude oil futures, declined 3.1% and the United States Brent Oil Fund (BNO) , which tracks Brent crude oil futures, decreased 2.5%.
Meanwhile, WTI crude oil futures were 2.4% lower to $51.3 per barrel and Brent crude fell 2.0% to $60.2 per barrel.
Crude oil prices weakened Friday as the markets remained wary of the global growth outlook, especially after Chinese data revealed a slowdown in industrial production in November and retail sales fell to its lowest level in 15 years, the Wall Street Journal reports.
The strength in the U.S. dollar, along with a volatile equity market, also exacerbated the selling pressure. Giovanni Staunovo, commodities analyst at UBS Wealth Management, pointed out that USD-denominated commodities like oil exhibit an inverse relationship to the greenback, which strengthened 0.4% against a basket of its major peers.
Nevertheless, Staunovo added that overall “I would think oil prices are in a position of stabilizing around this level” as the Organization of the Petroleum Exporting Countries and its allies outside the cartel, including Russia, plan on cutting production to stabilize prices.
The oil cartel and its allies are expected to reduce oil production by 1.2 million barrels per day next year, which should help soak up the global supply glut.
The International Energy Agency said Thursday that commercial oil stocks in the Organization for Economic Cooperation and Development rose by 5.7 million barrels in October to 2.872 billion barrels, the first time commercial petroleum inventories were above the five-year average since March.
“It will be chiefly up to OPEC, and Saudi Arabia above all, to bring the oil price under control by complying strictly with the agreed production cuts,” analysts at Commerzbank said in a note. “Saudi Arabia therefore intends to reduce U.S. exports in the short term.”
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