Oil Prices, ETFs in the Future: Rock Bottom or Sky High?

January 16th at 11:00am by Tom Lydon

commodity exchange traded funds (etfs) and exchange traded notes (etns)The recent volatility in crude oil has lead the commodity and its exchange traded funds (ETFs) to suffer from whiplash, but what does the future look like for black gold?

Supply and inventory numbers are staggering, oil producers and refiners are sitting on roughly 327 million barrels at tank farms around the country and private and national oil companies, refiners and trading companies are storing an additional 80 million barrels aboard several supertankers and smaller tankers.  Many of these companies are storing oil in hopes of a spike in crude prices, states Clifford Krauss of The New York Times.

This volatility in crude has been so apparent that daily oil prices have fluctuated by 5% or more 39 times over the last year. Additionally, this volatility has somewhat of a domino effect and has taken its toll on industries like automotive, shipping, airlines, transportation and gasoline at the retail level. Nationwide average retail gasoline prices have roller-coastered from $4/gallon down to $1.62 and back up to $1.79 all in a matter of months.

Many believe that crude prices just can’t go much lower and will eventually retreat and gain some ground. For this to happen, emerging markets are going to have to start recovering from the global recession, unemployment rates will have to decrease, credit markets will have to loosen up- in essence, consumers will need to drive more, use more crude oil and eventually cause a spike in demand for the commodity.

Only time will tell the fate of black gold. If the volatility in oil ETFs is too much to stomach, there are other options, too.

Some ETFs to watch the trend lines on are:

iPath S&P GSCI Crude Oil Tot Ret Idx ETN (OIL): down 62.2% over the last year

United States Oil Fund (USO): down 57.9% over the last year

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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