Energy Slumps on OPEC Woes

Oil futures slumped in early morning trading Tuesday, and the VelocityShares 3x Long Crude Oil ETN (UWTI) is getting hit hard.

Oil futures contracts dated November fell 1.5% in early morning trading on reports that the Organization of the Petroleum Exporting Countries (OPEC) will reach a deal to limit output.

According to Reuters, Saudi Arabia and Iran have dismissed earlier speculation that the two oil-producing nations are ready to strike a deal that would limit their oil exports, with Saudi Energy Minister Khalid al-Falih telling reporters the meeting is merely “consultative.”

Iranian Oil Minister Bijan Zanganeh went a step further, saying now “is not the time for decision-making.”

Yesterday, oil futures rose over 3% in trading on hopes that the OPEC meeting would conclude with a decisive plan to limit how much oil they produce and sell to the rest of the world.

The news has hit UWTI hard, causing the fund to fall 4% in pre-market trading. Other ETFs tracking oil, including the United States Oil fund (USO) and the ProShares Ultra Bloomberg Crude Oil fund (UCO), are also down pre-market. Funds short oil such as the ProShares UltraShort Bloomberg Crude Oil fund (SCO) have risen on the news.

The weakness in oil prices has not brought crude futures to recent levels. WTI futures expiring in November were trading 8.9% below their current level at the beginning of August and 4.4% lower than today’s price one week ago. At today’s current levels, oil futures remain slightly up year-to-date and 28% up from their year-to-date low in the middle of January.

The improvement in oil prices, and its relative stability in 2016, has helped the energy sector see renewed strength after consistent declines in 2014 and 2015. Year-to-date, the Energy Select Sector SPDR ETF (XLE) is up 11.6%, excluding its 3.4% dividend. However, XLE is falling 0.3% in pre-market trading on heavy volume.

In addition to anticipation regarding OPEC’s meeting, traders are awaiting the U.S. Energy Information Administration’s weekly release of data on America’s energy reserves and production, which will be released on Thursday at 10:30 a.m., Eastern standard time.

Originally Posted at Investopedia: Energy Slumps on OPEC Woes (UWTI, XLE) | Investopedia
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