It wasn’t long ago that the Saudis were eagerly working alongside the Russians to shore up oil prices and help boost their economies by guaranteeing at least one profitable pillar. However, there seems to be a pivot in progress, and prices are coming down. That move sent the United States Oil Fund (USO) plummeting over 4.5% in Monday morning’s trading as the oil market looks for a new floor.
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While a few months ago, the Saudis were pursuing price support to maintain oil revenue, the issue of slumping demand in the face of rising prices almost everywhere else was really only starting. Now, the Saudis are course-correcting and cutting prices in order to spur demand and get buyers back to the table. The cuts are universal, reports note, with the Saudis opening up prices to its massive Asian market and beyond. Slumping demand worldwide was taking a toll, but it was the decline in Chinese demand that proved especially troublesome, reports noted.
Surging Competition
One problem for the Saudi market, however, proved a shock: a surge in exports from the United States oil market. Normally, the U.S. is a major importer rather than an exporter. But in just the last month or so, oil exports from the U.S. surged, hitting around six million barrels per day, a record for the market. And those were just exports; production was somewhere around 13 million barrels per day, and the combined weight of that much oil coming into the market for both export and domestic consumption—which reduces imports—left foreign markets on the back foot. The ongoing trouble in and around the Middle East, meanwhile, makes the United States an especially attractive place to buy oil.
Is USO a Good ETF to Buy Now?
Turning to Wall Street, a look at the last five days in trading for the United States Oil Fund shows a loss of just 1.56%. The growth in U.S. oil exports is a comparatively new development, but it’s still enough to destabilize the overall market. However, the ETF was briefly trending upward before a sudden loss late last week. It quickly rallied from that loss, but the latest news sent it plunging once more.
