Betting On The Brent ETF? Watch These Factors

Among futures-based oil exchange-traded products, the United States Oil Fund LP (ETF) USO gets the most attention. USO tracks front-month West Texas Intermediate futures, the U.S. benchmark oil contract.

USO And BNO

However, Brent futures are the global oil benchmark contract. Fortunately, USO has a Brent-based cousin, the United States Brent Oil Fund, LP BNO. And yes, there can large discrepancies in returns between BNO and USO. Just look at the past 90 days. USO's nearly 20 percent gain over that stretch sounds impressive until seeing that BNO is higher by more than 40 percent over the same period.

Related Link: Wall Street Not Surprised At Lack Of Weekend Agreement In Doha

After BNO's recent surge, there is plenty to watch in terms of macro factors affecting oil. There always is. But there might not be much to get excited about when it comes to more near-term upside for Brent futures.

Near-Term Catalysts

“Unless Brent crude oil was to retreat below the $38.81–38.85 range – the range where the 50- and 100-day moving average converged last week – there is little to get excited about as we saw much lower prices than current levels just 10 days ago,” said Rareview Macro founder Neil Azous in a note out Monday.

Although the weekend's Doha meeting did not produce material output reductions as oil bulls were hoping for, there is an oil strike going on in Kuwait, leading to reduced production in that member of the Organization of Petroleum Countries (OPEC). That could bring some relief, maybe, to the iShares MSCI Frontier 100 ETF FM. FM allocates 22.5 percent of its weight to Kuwaiti stocks, one of the largest weights to that country among all ETFs.

As Azous points out, Saudi Arabia, OPEC's largest producer, possibly raising output to make up for lost production from Kuwait could be a dangerous game for the kingdom to play.

“The key point here is that Saudi Arabia has significant internal problems and the threat of the raising crude output by more than 1mm/bpd if there was demand for it seems a bit misguided on the second day of a strike from Kuwait where the information about what is going on is in its early stages and cloudy at best,” added Azous.

Year-to-date, investors have added $22 million in new assets to BNO, a fraction of the $768.1 million that has flowed into USO.