Oil ETFs Rebound After Crude Flirts with $40 a Barrel

Oil exchange traded funds erased early losses Monday, with West Texas Intermediate crude oil futures rallying, after crude prices flirted with the psychologically key $40-per-barrel level.

On Monday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, gained 2.6% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, rose 1.0%.

Nymex WTI crude oil futures were up 3.2% to 42.0 per barrel on Monday while ICE Brent Crude futures were up 0.9% to $44.9 per barrel.

Meanwhile, leveraged oil ETFs also shot up on the action. On Monday, the ProShares Ultra Bloomberg Crude Oil (NYSEArca: UCO), which takes two times or 200% daily performance of WTI crude oil, increased 5.4% and the VelocityShares 3x Long Crude ETN (NYSEArca: UWTI), which tracks three times or 300% the daily performance of WTI crude, jumped 8.1%. [Investors Capitalize on Oil Swings with Leveraged ETFs]

Analysts attributed Monday’s strength to technical trading after oil prices dipped toward the $40 a barrel, a level last seen in August amid concerns over China’s economy, the Wall Street Journal reports.

According to the CME Group, traders held over 20,000 December put option contracts at $40, giving them the right to sell a Nymex futures contract if the price falls to the level. The December contracts expire Tuesday, so traders would be closing out positions ahead of the expiry date.

The additional buying pressure may have helped support the slipping oil prices, which have been steadily declining as the global supply glut widens. The average price of crude sold by OPEC dipped to $39.21 per barrel on November 13, falling below $40 per barrel for first time since 2009 – the basket typically trades below international oil futures, reports Grant Smith for Bloomberg.