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Canadian Wildfires Help Pare Oil ETF Losses on Saudi Arabia’s Ministry Changes

Despite a halt in Canadian oil production, crude oil and related exchange traded funds slipped Monday as a stronger U.S. dollar and a change up in Saudi Arabia's cabinet dragged on energy.

The United States Oil Fund (NYSEArca: USO ) , which tracks West Texas Intermediate crude oil futures, fell 2.4% on Monday while the United States Brent Oil Fund (NYSEArca: BNO ) , which tracks Brent crude oil futures, declined 3.3%.

Meanwhile, WTI crude oil futures were down 2.3% to $43.6 per barrel and Brent crude was 3.4% lower to $43.8 per barrel.

Oil prices declined on a strengthening U.S. dollar and changes in the Saudi Kingdom.

Related: Why Investors are Bearish on Oil ETFs

The USD appreciated after Federal Reserve Bank of New York President William Dudley reaffirmed that it remained a "reasonable expectation" that the Fed would raise interest rates two times this year, the New York Times reports.

Over the weekend, Saudi Arabia's long-serving oil minister Ali al-Naimi was dismissed and replaced with Khalid al-Falih, chairman of state oil company Saudi Aramco, the Wall Street Journal reports.

"You're going to see a much more robust Saudi Arabia going forward. There's no question about it," Capital founding partner John Kilduff told CNBC . "You're going to see more action, direct action on their part going forward. It's going to make a lot more volatility."

Analysts believe Falih will likely maintain a policy of safeguarding the kingdom's market share, even by contributing to the ongoing supply glut.

Falih "has made his opposition to unilateral cuts or freezing of production very clear," analysts at the research firm Energy Aspects said in a note.

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Meanwhile, wildfires in Alberta, Canada have halted an estimated 1 million barrels of daily production, or the equivalent to a third of the country's capacity, the Financial Times reports.

"Alberta is the third largest oil reserve globally and largest source in Canada," Tim Pickering, Founder and CIO of Auspice Capital, which also offers the Canadian Crude Oil ETF (CCX.TO), told ETF Trends. "Canada is the largest foreign supply to the U.S."

The supply disruption helped explain why July Brent crude was briefly trading at a discount to July WTI futures Monday. The supply concerns bolstered WTI crude and Canadian oil, with the Western Canada Select, a marker for Alberta's heavy sour oil, narrowing to a discount of $11 per barrel to WTI.

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If the extent of the fire damage is severe enough to keep Alberta's production offline, the supply disruption could put a dent to the global crude oil glut. Last year when fires occurred - it was no where near as significant as the current damage, about 500,000 barrels per day were knocked offline, which helped WTI rally $20.

"Right now it is estimated 1 million barrels per day is offline from the region," Pickering added. "Given the storage in the province is max 35 million barrels, it won't last long. With the global supply-demand imbalance estimated at 1.5 million to 2 million barrels per day, this could change a lot if it persists."

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United States Oil Fund

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article was provided by our partner Tom Lydon of etftrends.com.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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