The End of OPEC? - SPDR Dow Jones Industrial Average ETF (ARCA:DIA)

In a meeting on Wednesday, mired in disagreement, the ministers of OPEC declined to increase production quotas. The delegates were unable to reach an agreement on exactly what the new quotas should be,

Bloomberg

reported. The news was followed by a rally in oil prices and a slight decline in U.S. markets. OPEC's decision not to increase production quotas may have caught the market off guard, as many observers had predicted that OPEC would increase oil production. Interestingly, Kuwait's OPEC delegate stated that the organization will not meet in September, opting to wait until December. That could leave oil prices near current levels for the rest of the year, as supply remains unchanged. Perhaps the most interesting development from the meeting was the level of disagreement between the cartel's members. The Saudis—who have more oil than any other OPEC member—proposed raising production by 1.5 million barrels per day. That proposal was shot down by six of the other OPEC delegates, according to

The Guardian

. Could this disagreement among OPEC member countries signal the end of the cartel? OPEC's decision has vast implications for the U.S. dollar. If oil supplies remain tight, that may prove to be bearish for the general U.S. economy. A weaker U.S. economy might mean a weaker U.S. dollar. However, if the disagreement over the decision leads to a decline in OPEC's market power, or the cartel folds entirely, that might be bearish for the price of oil, and therefore bullish for the U.S. economy and the dollar.

Action Items

Bullish:

Traders who believe that oil prices will remain high might want to consider the following trades:

United States Oil Fund USO is a long play on the price of oil. USO is presently up nearly 3% on the session and may rally further if oil prices continue to rise.
Oil Service HOLDRs OIH is another long play on oil, but it is not a pure play on price. Rather, OIH attempts to return a value corresponding to the performance of the oil companies, rather than the commodity itself.

Bearish:

Traders who believe that oil prices will decline may consider taking positions in the following:

United States Short Oil Fund DNO is a short play on oil. If the price of oil declines due to a weakening of OPEC's power, DNO may do well.
SPDR Dow Jones Industrial Average DIA is a broad play on the overall U.S. economy. If oil prices decline, the U.S. economy may improve which could be bullish for U.S. equities.

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