Economy

Oil ETFs Rebound as Bargain Hunters Look to a Potentially Oversold Market

Oil ETFs Rebound as Bargain Hunters Look to a Potentially Oversold Market

Oil surged on Wednesday, erasing some of the steep losses that have taken crude benchmarks to lows not seen in 1-1/2 years on perceptions the price slide has gone too far, too fast.

A recovery in the US stock markets could help drive prices higher because of a shift in investor sentiment, but these gains are likely to be limited by rising concerns over a global economic slowdown.

Crude has been caught up in wider market weakness as the US government shutdown, higher US interest rates and the US-China trade dispute unnerved investors and exacerbated worries over global growth.

Brent crude oil futures were down 29 cents, or 0.57%, at US$50.18 a barrel and earlier fell to the lowest since July 2017. Even with the day's gains, USA crude has still lost almost 40 per cent from its October closing high at more than US$76 a barrel.

OPEC is said to deepen output cuts.

The global benchmark has declined about 16 percent since Organization of Petroleum Exporting Countries and its allies including Russian Federation announced an agreement to cut output earlier this month amid investor skepticism that the reductions will be enough to balance supply and demand.

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"I think there is a smidgen of over-expansion to the drawback connected to worldwide market fears", said Olivier Jakob, examiner at Petromatrix.

"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.

But the recent stats are adding further bearish momentum in oil, especially after Iran's oil minister was quoted as saying that "the private buyers of Iranian crude have had "no problems" exporting it", despite USA sanctions targeting Iran's oil exports. Brent crude futures, however, were still trading lower, easing 0.36 percent to trade at $50.29 per barrel.

Even deeper cuts might be enough on their own: the U.S. The global benchmark crude traded at a $7.44 premium to West Texas Intermediate.

"The planned cuts have been carefully studied, but if it doesn't work, we always have the option to hold an extraordinary OPEC meeting and we have done so in the past", Suhail Al Mazrouei, who is also OPEC president, said in Kuwait.

Looking ahead, on January 1 an OPEC-led group is scheduled to cut production by 1.2 million barrels per day.


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