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OPEC Will Boost Oil Production (USO)

Monday, June 25, 2018 2:57
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From Zacks: This week, we expect new economic reads on housing, consumer confidence and a fresh GDP revision for Q1.

Last week, we simply rode out the continuation of things we already knew: a robust domestic economy and labor market, countered by a decoupling globally as the U.S. dollar strengthens further, as well as looming concerns about trade tensions between the U.S. and its main trading partners.

Market futures are up at this hour, following a rough week for traders. In fact, the Dow is looking to break eight straight days of losses; nine straight for the blue-chip index would be the longest since Jimmy Carter was president. Solid earnings reports in the Tech sector from companies like Micron (MU – Free Report)  and Oracle (ORCL – Free Report) this week has kept the Nasdaq buoyant, and small-caps on the Russell 2000 have enjoyed a stress-free existence, relative to indexes that deal with current global headwinds.

So what’s new? In Vienna, OPEC has just reached a decision to increase output of oil barrels per day — 1 million on the headline, but actually closer to 600K per day of “real” barrel output. The reason for this discrepancy is based on the inability of some OPEC members to increase production as much as others. In fact, ahead of the meeting Iran has already pushed back on the expected increase.

An additional 600K barrels per day is not expected to affect oil prices on the global market, which is likely to come as somewhat of a disappointment to President Trump, who’d been sending a message to OPEC participants that he wants to see prices come down. However, not only are oil prices likely to stay in the $60s (WTI) or $70s (Brent) following this meeting (both major oil indexes are up more than $2 this morning), but the manner in which the consortium plans to discuss the production increase as “reducing cuts” rather than “adding production,” the better for opponents of the plan to save face as the meeting adjourns.

How will this affect oil stocks? In the Zacks system, two super-majors currently carry Zacks Rank #1 (Strong Buy) ratings: Chevron (CVX – Free Report)  and Royal Dutch Shell (RDS.A – Free Report) . Chevron shares are up 2% in today’s pre-market, whereas Shell (a Netherlands-based company, not U.S.-based) is up 3.6%. Chevron is still working toward its year-to-date highs from mid-January; Shell has only pulled back from recent highs during this difficult June swoon, and notched its year-to-date highs a month ago.

The United States Oil Fund LP ETF (USO) fell $0.07 (-0.50%) in premarket trading Monday. Year-to-date, USO has gained 16.74%, versus a 3.37% rise in the benchmark S&P 500 index during the same period.

USO currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #35 of 116 ETFs in the Commodity ETFs category.

This article is brought to you courtesy of Zacks Research.

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