The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate oil futures, had flirtations with improvement during the third quarter, but crude’s overall performance was not overly impressive. Now, traders’ enthusiasm for oil appears to be waning.

Investors should be careful of getting caught up in oil’s recent strength because the commodity is still in a bear market and expectations for a significant recovery are muted. Looking ahead, we may be in for low oil prices for much longer than many anticipated.

In late September, “a trader bet more than $5 million that the US Oil Fund ETF would fall back to all-time lows. Specifically, the trader bought more than 80,000 November 13.5-strike put options for $0.65 each. This is a bet that USO falls below $12.85 by November expiration, an 11 percent decline from where USO traded on Wednesday morning,” reports CNBC.

Specifically, USO tracks near month crude oil futures, swapping out contracts within two weeks of expiration for the next month contract. Consequently, in a contangoed market, USO would essentially be selling low and buying high, which may cut into performance. [Positioning for an Oil ETF Rebound? Watch For Contango.]

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. 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.

“Speculators reduced their net-long position in West Texas Intermediate crude by 9.1 percent in the week ended Sept. 29, according to data from the Commodity Futures Trading Commission. Longs dropped from a 12-week high while shorts increased,” reports Mark Shenk for Bloomberg.

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