Contrary to popular belief, oil prices couldn’t move higher meaningfully in recent trading despite the OPEC output cut deal. Surging shale oil production actually refrained oil prices from shooting higher. U.S. crude-oil inventories spurted to their record high last week, as per the Energy Information Administration.

The world was anticipating a sharp and much-needed rebound in oil prices on the OPEC output cut deal signed on November 30. OPEC had decided to cut production by about 1.2 million barrels a day by January. Plus, on December 10, OPEC cut the first deal with non-OPEC since 2001 to reduce output this year. These pacts were formed for six months (read: Top ETF Stories of the Fourth Quarter).

These promised cuts initially psyched up energy investors who expected a sharp rebound in oil prices. As a result, WTI crude ETF United States Oil USO and Brent crude ETF United States Brent Oil BNO added about 12.6% and 15.6%, respectively, in the last three months (as of February 16, 2017) (read: How Effective is the OPEC Deal for an Oil ETF Rally?).

However, mounting U.S. crude production lately killed hopes of oil prices hitting the $70 level from the present $53 level. As per some analysts, OPEC’s target was to stop the fall in oil prices, not to push it higher above the $70 range. This is because the OPEC deal is probably not sufficient to raise oil prices. This has made USO and BNO a loser this year with both products declining over 2.7% each (as of February 16, 2017).

Deeper OPEC Cuts Likely?

Against this background, there is a renewed probability of key oil producers extending their oil output-cut pact. They may even resort to further cuts if global crude stocks do not plummet to a significant level. As per the source, OPEC’s supply cut alliance could be stretched by May if all major producers display “effective cooperation.”

A group of analysts expects OPEC to take the deal forward. In fact, market participants are focusing on the possibility of further rebalancing in the oil market. Going by an article published on Reuters, non-commercial traders had a net long position of 477,000 U.S. crude contracts as of last week, a tad lower than the prior week’s record long position in oil futures. That said, some still expect oil to trade between $45 and $55 a barrel this year (read: Saudi & China Boost Leveraged Oil ETFs).

However, the likelihood of any protracted deal is still less, especially given the fact that only OPEC has “outperformed its compliance record, while non-OPEC [countries have] only cut about half of proposed cuts” and the U.S. is continuing to pump up more oil.

Crude inventories increased 9.5-million barrels in the week ended February 10, almost three times above analyst expectations, increasing commercial stock to a record 518-million barrels. The growth in inventories was because of 6.5% higher U.S. crude oil output since mid-2016.

Still, investors with a strong stomach for risks and want to play oil on hopes of further output cut, can tap USO, BNO, ProShares Ultra Bloomberg Crude Oil UCO and PowerShares DB Oil Fund DBO.

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US-OIL FUND LP (USO): ETF Research Reports

PWRSH-DB OIL FD (DBO): ETF Research Reports

US BRENT OIL FD (BNO): ETF Research Reports

PRO-ULT BB CRUD (UCO): ETF Research Reports

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