With The Recent Oil Glut Gone, Crude’s Upside Is Big (USO)

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May 24, 2018 6:33am NYSE:USO

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From John Rubino: Here’s a new indicator for you: It seems that the difference between the price of oil here and abroad is a measure of tightness in the market, with a rising spread indicating higher prices in the future, with all the inflationary pressures that that implies.


From the Wall Street Journal:

Trans-Atlantic Oil-Price Spread Soars as Supply Glut Disappears

U.S. oil prices are lagging behind global oil prices climbing toward $80 a barrel, the latest sign of a market that has gone from glutted to exceptionally tight in the past year.

U.S. oil futures are trailing Brent, the global benchmark, by more than $7 a barrel, settling at $71.28 a barrel on Friday. The two oil benchmarks are further apart than they have been since 2015, before U.S. crude could be freely exported.

Soaring oil means several things:

Geopolitically, it’s a big net negative for the US, since the main beneficiaries are countries that are at best frenemies and at worst flat-out threats. Saudi Arabia, Iran, Venezuela, and Russia are all big oil exporters and will, to varying degrees, use the coming windfall to do things that liberal democracies will not appreciate.

Economically, expensive oil means tighter margins for businesses that operate with long supply chains. Food, for instance, tends to travel long distances to reach local grocery stores, so higher transport costs mean more expensive tomatoes and hamburgers. Businesses suffering in this way will raise their prices to compensate, which will combine with tight labor conditions to goose the official inflation numbers.

This in turn will push up interest rates, with potentially serious consequences. See There’s A Number That Ends This Cycle — But What Is It?

And the car companies, well, they’ll find themselves on the wrong side of history once again, going all-in on trucks just as Big Iron becomes too expensive to own. See America’s Dumbest Companies Repeat Their Biggest Mistakes.

For precious metals miners the picture is mixed. Mining is energy intensive, so higher oil means rising costs. But inflation is great for gold and silver prices, which will more-or-less offset oil. The experience of the 1970s, when gold and silver soared along with oil, gives cause for optimism.

Anyhow, rising oil is one more peak-cycle indicator that solidifies the comparisons with past peaks and the carnage that followed.


The United States Oil Fund LP ETF (USO) fell $0.06 (-0.41%) in premarket trading Thursday. Year-to-date, USO has gained 20.82%, versus a 2.44% 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 114 ETFs in the Commodity ETFs category.


This article is brought to you courtesy of DollarCollapse.com.


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