The biggest U.S. exchange-traded fund that tracks oil is heading for the largest two-month outflow in six years, raising concern that crude’s 30 percent rally may stall.
Holders of the United States Oil Fund, known as USO, have withdrawn almost $1 billion so far in April and May, according to data compiled by Bloomberg. Crude dropped about $12 a barrel after a $1.4 billion exodus from the fund in the two months ended June 2009.
Oil has rebounded from a six-year low in mid-March on speculation that the falling number of drilling rigs will reduce output. U.S. crude stockpiles near the highest level in 85 years and OPEC’s refusal to cut production will continue to weigh on prices, according to Goldman Sachs Group Inc., Deutsche Bank AG and Citigroup Inc.
“The oil rebound has run out of gas and now you are seeing nervous investors with itchy trigger fingers bailing out of USO,” Eric Balchunas, a Bloomberg Intelligence analyst, said May 27. “They don’t want to get burned by another drop in oil.”
West Texas Intermediate crude for July delivery added 69 cents to $58.37 a barrel in electronic trading on the New York Mercantile Exchange at 11:41 a.m. London time, up from a closing price of $43.46 on March 17. Futures rallied 25 percent in April, the biggest monthly gain since May 2009, and have fallen 2.1 percent so far in May.
Fund’s Gain
The U.S. Oil Fund was at $19.56 Thursday, up from a record low of $15.96 on March 17. USO, which holds about 10 percent of the front-month July WTI contracts, jumped 22 percent in April and is down 4.6 percent so far this month.
Crude’s recovery has slowed this month. U.S. production climbed to 9.57 million barrels a day last week, the most in Energy Information Administration data going back to 1983. Inventories were 479.4 million, 86 million above the previous year’s level.
The Organization of Petroleum Exporting Countries, which supplies about 40 percent of the world’s oil, meets June 5 in Vienna to discuss output policy. The group will maintain its production target, Mohammad Oun, Libya’s deputy vice prime minister for energy, said Thursday, joining Kuwait in predicting no policy change.
“We do not think that the bulls have enough supporting fundamental factors to make a case for a higher oil price,” Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy, said Thursday. The supply surplus will push oil down to “$55 and then possibly lower,” he said.