United States Oil Fund (USO) Down In Early Trading After OPEC Meeting

The Organization of Petroleum Exporting Countries (OPEC) met in Vienna. As expected the oil and gas cartel decided to stay firm on its decision of maintaining output at 30 million barrels of oil equivalent per day. The cartel highlighted that it would stick to this policy for the next six months.

Since July 2014, crude oil prices, as a result of the supply glut fell by over 40%. The decision of OPEC on Friday initially led to a rise in the crude oil prices, however, the prices soon fell again.

The US benchmark for crude oil, West Texas Intermediate, was down 1.43% at $57.17 per barrel, while the global benchmark for crude oil, Brent Crude was down 1.34% at $61.20 per barrel.

The initial rise in the prices came after OPEC’s decision of maintaining production for the next six months. Meanwhile, if Tehran signs a nuclear deal, Iran will also be able to export oil, but OPEC’s decision of keeping output constant may overwrite this, and the world may not see Iranian exports for the next six months.

However, the decline in the crude oil prices came after strengthening of the Us dollar. The US dollar rose 1% against other currencies on Friday. Earlier in November 27, OPEC had decided not to cut its output. The cartel feared losing market share, and hence decided to go ahead with maintaining its output.

The decision by OPEC means that the oil market will remain highly oversupplied, and the lower oil prices would continue in the long-run. Energy companies engaged in the upstream activities of exploration and production have seen declining margins. Majority of the oil companies, including Exon Mobil Corporation (NYSE:XOM), and Chevron Corporation (NYSE:CVX) have all seen a decline in their Year-over-Year profits.

Although the oil minister of Iran, Bijan Zanganeh, was keen on offering lucrative contracts to foreign oil companies, and ramping up exports, one of the OPEC delegates, as reported by Reuters dismissed this, saying, “When the production comes, this matter will settle itself.” Most of the analysts believe that the addition of one million barrels of Iranian supply would not touch the market before 2016.

Another OPEC member, Libya is also facing many problems, as it is going through civil unrest. The country aims to also add one million barrels of oil equivalent in the market once the unrest ends, and its ports resume working.

As reported by The Wall Street Journal, the head of oil and gas at BMI research, Marina Petroleka, has said, “No surprise, exactly what was expected.” She added that while the OPEC has decided to maintain output at 30 million barrels, production would increase by the cartel in order to meet the rising summer demand. She further said, “Eyes are now to the next meeting in end November, depending on what happens with the Iranian nuclear negotiations. The next meeting could be where a lot more internal negotiation and change of policy may need to take place.”

The United States Brent Oil Fund, LP (NYSEARCA: BNO) during early trading on Friday was down 0.36% at $22.35, while the United States Oil Fund LP (ETF) (NYSEARCA:USO) was down 0.71% at $19.52.

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