OPEC ETFs Crushed By Oil Crash: What Next?

Among various other reasons, the oil crash probably traumatized the global economy the most in the second half of this year. Sluggish demand thanks to a soft macroeconomic backdrop in some developed regions including the Euro zone and China, booming oil production resulting in abundant supply, price war induced by OPEC nations and a strengthening dollar caused this debacle (read: 3 Energy ETFs Hit the Most by OPEC’s ‘No Cut’ Decision).

Moreover, the Organization of Petroleum Exporting Countries’ (OPEC) latest decision not to reduce oil production in spite of spilling-over supplies, oil has crumpled to a bear market. West Texas Intermediate (WTI) crude is presently trading around $65 a barrel – almost a five-and-half year low level.

Brent price hovered around $70 per barrel as of December 4, 2014. In fact, OPEC’s no output cut decision led to an 18% slump in oil prices in November, indicating the acutest monthly loss since in about six years. This was in stark contrast to the triple-digit mark oil price hit in early 2014 (read:Best and Worst Performing ETFs of November).

Can the Price Rebound? 

While all was not well for oil and OPEC regions have no intention of cutting inventory, the U.S. Energy Department’s weekly inventory release has shown a glimmer of hope lately. The federal government’s EIA report indicated that crude inventories recorded a surprise drop by 3.69 million barrels for the week ending November 28, 2014.

The latest followed a rise of 1.95 million barrels in the preceding week. If this momentum continues and EIA keeps reporting such downbeat production data, we might see a needed rebound in the oil price.

Quite expectedly, the oil downfall spread horror among several assets classes and investing products related to the oil price. Among these, OPEC nations need special mention.

OPEC ETFs in Focus  

Oil rich OPEC nations are presently left panting. Apparently, to channelize huge inventories, many OPEC nations got into a price war with Saudi being the latest to offer the U.S. and Asia oil at a discount. As a result, ETFs belonging to OPEC nations have had a blood bath these days.
MSCI UAE Capped ETF (UAE – ETF report) was down 16.2% in the last 26 weeks and MSCI Qatar Capped ETF (QAT – ETF report) has lost about 6% during the same time frame. Market Vectors Gulf States Index ETF (MES) which is heavy on UAE (34.65), Qatar (25%) and Kuwait (23.1%) has retreated about 15% in the last 26 weeks. MSCI Frontier 100 Index Fund (FM) was down about 11% during this phase thanks to its tilt toward Kuwait (25.2%) and Nigeria (13.2%) (read: 3 Best Performing ETFs of the Third Quarter).

However, the situation is still under control for these OPEC players as Kuwait, Qatar and UAE require the break-even oil price to be $75, $71 and $80 a barrel, per Forbes. Another research house, projected the 2014 fiscal break-even oil price (the price which is required to make oil revenues at par with spending obligations) for Iraq, Kuwait, Qatar, Saudi and UAE at $111, $54, $55, $98 and $79 respectively.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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