The ongoing weakness in oil market has also dragged down the price of United States Oil Fund (USO), which has fallen by 10% since the beginning of year. Is Saudi Arabia capable of further driving down the price of oil? How is USO doing compared to oil prices? Let’s review the recent developments in the oil market.
The recent plunge in the price of oil has also brought down the price of the oil ETF USO; the ETF continues to underperform the price of oil.
This is due to the ongoing Contango in the future markets, which results in roll decay. Moreover, the price of oil isn’t likely to recover anytime soon – at least as long as the price war that Saudi Arabia initiated will continue. Are Saudi Arabia’s oil production costs so low?
According to a dated report by the EIA, production cost of oil in the Middle East is around $17 per barrel – this number is based on data collected back in 2007-2009. So even if we do account for a 2% annual inflation gain, this still comes to an average rate of less than $20. Based on the actions of Saudi Arabia, the country’s output cost could also be even lower than this figure.
The rest of this analysis is at Seeking Alpha
For more see: USO Investors — Beware of The Contango!