Oil-focused ETFs came under pressure this week after OPEC+ announced plans to boost production starting in September, raising fresh concerns over an oversupplied market.
USO ETF is in the red today. Check its prices live, here.
The cartel will unwind the last leg of its voluntary production cuts, adding roughly 547,000 barrels per day back into global supply, reported Bloomberg. The move weighed on crude prices and hit popular oil ETFs tied to near-term futures contracts.
Also Read: India Stands Firm on Russian Oil Imports Despite Trump’s Sanction Threats
Futures-Heavy ETFs Take A Hit
ETFs like the United States Oil Fund USO and United States Brent Oil Fund BNO fell over 5% in the past week when speculations began. Both funds track front-month oil futures and are vulnerable in a contango environment, when futures contracts are priced higher further out, eroding returns on rollovers.
Leveraged products such as the ProShares Ultra Bloomberg Crude Oil UCO also saw outsized losses, down about 10% in the past week, reflecting amplified exposure to daily moves in crude prices.
Also Read: Halliburton Has Rug Pulled From Under It, Analyst Blames Tariffs And OPEC
Alternative Strategies Show Resilience
Not all oil-linked ETFs suffered. Funds using optimized roll strategies or offering equity exposure to energy companies held up better.
Equity-based funds like the Energy Select Sector SPDR Fund XLE and VanEck Oil Services ETF OIH were more insulated, losing around 1.7% during the same period, with underlying holdings such as ExxonMobil Corp XOM and Halliburton Co HAL expected to benefit from increased drilling activity.
Geopolitics Add Another Layer Of Risk
The OPEC+ move comes amid rising geopolitical tensions, with reports suggesting the U.S. may consider secondary sanctions on China for importing Russian crude, like it just did for India. Investors seeking to reduce exposure to such risks may look to globally diversified resource ETFs.
The SPDR S&P Global Natural Resources ETF GNR and FlexShares Global Upstream Natural Resources ETF GUNR offer broader exposure to energy and commodities worldwide.
Outlook
As oil markets digest the upcoming supply increase, ETF investors may consider shifting strategies. Futures-heavy funds could continue to face headwinds, while equity-based or globally diversified funds may offer more stability in the months ahead.
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