The crude oil and related exchange traded funds are heading toward a seasonally strong period, but the global glut may have thrown a wrench into the normal rhythm of the energy market.
The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate oil, dipped 2.6% Tuesday and was relatively flat over the past week. WTI crude oil futures were down 2.9% to $48.5 per barrel.
Meanwhile, inverse oil options rose Tuesday. For instance, the United States Short Oil (NYSEArca: DNO), which tracks the opposite moves of the West Texas Intermediate crude oil futures, increased 2.4%. The DB Crude Oil Short ETN (NYSEArca: SZO), which also tracks the simple inverse of oil, gained 3.7%. [Investors Capitalize on Oil Swings with Leveraged ETFs]
Additionally, the ProShares UltraShort Bloomberg Crude Oil (NYSEArca: SCO), which tries to reflect the two times inverse or -200% daily performance of WTI crude oil, jumped 5.0% Tuesday. The DB Crude Oil Double Short ETN (NYSEArca: DTO), which also follows a -200% performance of oil, increased 5.2%. Lastly, the VelocityShares 3x Inverse Crude (NYSEArca: DWTI), which takes the three times inverse or -300% performance of crude oil, surged 8.9%. [Inverse ETF Plays for a Bearish Oil Outlook]
ETF traders have been anticipating a continued fallout in oil prices, funneling a net $111.4 million into SCO year-to-date, according to ETF.com data. DWTI also attracted $97.3 million in inflows so far this year.
Looking at historical trends going back both 20- and 30-years, the oil market should be heading into a typically strong period from March through May after the seasonal lows in January through mid-February, writes technical analyst J.C. Parets, founder and president of Eagle Bay Capital.
Crude oil historically averaged a 3.5% and 2.5% return in March and April.
However, oil prices were tumbling, again, Tuesday on expectations that global crude inventories would continue to expand, reports Nicole Friedman for the Wall Street Journal.
For instance, in the U.S., the most pressing concern is that Cushing inventories could soon hit maximum capacity as U.S. producers have been increasing production despite falling prices.
“The current hyper-focus on U.S. inland crude dynamics is reaching a boiling point,” Tudor, Pickering Holt & Co. said in a note.
United States Oil Fund
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Max Chen contributed to this article.