Even with short-term supply risks, such as the escalating violence in Iraq, traders using oil exchange traded products shouldn’t expect large swings as crude oil prices are at their most stable since the 70s.
According to Christof Rühl, BP’s group chief economist, the world has suffered from a cumulative 3 million barrels a day in supply disruptions since the start of the 2011 Arab uprising, but a jump in shale oil production in the U.S. has essentially “canceled out” the shortages, reports Guy Chazan for Financial Times.
“There has been an almost perfect match between outages in north Africa and elsewhere and US production growth,”Rühl said in the article, pointing to an “eerie quiet” in global oil markets.
Last year, the U.S. benefited from the world’s largest jump in oil production as new techniques like hydraulic fracturing, or fracking, and horizontal drilling drew oil from shale beds. U.S. oil produced exceeded 10 million barrels per day in 2013, its highest level since 1986.
Meanwhile, disruptions in the Middle East helped offset the jump in U.S. production. Specifically, unrest in Syria, Libya and more recently Iraq have weighed on international oil prices.
West Texas Intermediate crude oil futures were trading around $106.8 per barrel Monday while Brent crude oil futures were hovering around $112.7 per barrel.
ETF investors have a number of ways to track the crude oil market. The U.S. Oil Fund (NYSEArca: USO) tracks WTI oil and the United States Brent Oil Fund (NYSEArca: BNO) provides exposure to Brent oil. Year-to-date, USO is up 10.8% and BNO is up 1.8%. Both ETFs track front month futures contracts for their respective markets and rolls its contracts over from month to month. [Oil Rising, but Traders Skirt Leveraged ETFs]
Alternatively, the PowerShares DB Oil Fund (NYSEArca: DBO) and United States 12 Month Oil Fund (NYSEArca: USL) provide exposure to WTI oil but include a different weighting methodology to limit the negative effects of contango – later dated contracts are costlier than near month contracts. DBO can include contracts as far out as 13 months and dump contracts at any point. USL, on the other hand, ladders 12 months of contracts to diminish the effects of backwardation and contango. So far this year, DBO has gained 9.6% and USL has increased 8.9%. [More Upside for Energy ETFs]
U.S. Oil Fund
For more information on crude oil, visit our oil category.