West Texas Intermediate futures are up another 1.3% today, a gain that comes on the heels a massive Friday spike that sent oil traders scurrying to cover short positions. The oft-derided United States Oil Fund (NYSEArca: USO) is up nearly 4% today on volume that is almost 20% above the daily average.
Don’t look now, but USO has surged 9% over the past five days, indicating that it might be dangerous to consider bearish oil trades in the near-term. Then again, plenty of market observers see more downside for crude and fundamentals indicate that thesis could be validated.
“The rising supply of oil from U.S. shale fields has helped create a global glut, even as world-wide demand remains tepid. That, along with Saudi Arabia’s recent decision to keep its production apace, has helped send oil prices tumbling. Most analysts expect the pressure on prices to continue, raising questions about how investors can shift their portfolios to take advantage,” reports Gregory Zuckerman for the Wall Street Journal.
As the Journal notes, some investors have taken to shorting ETFs such as the CurrencyShares Canadian Dollar Trust (NYSEArca: FXC) and select holdings in the iShares MSCI Canada ETF (NYSEArca: EWC), the largest U.S.-listed Canada ETF.
Canada’s status as one of the largest non-OPEC producers in the world has plagued EWC and FXC this year, sending the ETFs to an average year-to-date loss of 7.2%. EWC allocates almost 23% of its weight to the energy sector, but traders have also taken to shorting Canadian banks as oil falls, leaving EWC vulnerable because the ETF devotes almost 36% of its weight to the financial services sector. [Canada ETFs Barely React to Rate Cut]