The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, has shed more than 10% of its value in just the past month, but that has not prevented the exchange traded fund from being one the fourth quarter’s top asset-gathering ETFs.
The Organization of Petroleum Countries has kept up production to pressure high-cost rivals, such as the developing U.S. shale oil producers. The International Energy Agency expects it will take several years before OPEC can effectively price out high-cost producers. [Oil ETFs Face World-Record Supply Glut]
In the face of the rising global supply glut, investors can utilize a number of inverse or bearish ETF options to hedge against further declining energy prices. For instance, the United States Short Oil (NYSEArca: DNO) tracks the opposite moves of the West Texas Intermediate crude oil futures, and the DB Crude Oil Short ETN (NYSEArca: SZO) also tracks the simple inverse of oil. [Leveraged ETFs Are Popular Plays Among Swing Traders]
“The share count of the biggest exchange-traded fund that tracks oil prices climbed in the past 10 sessions to 241.4 million yesterday, the highest level since the fund’s inception in 2006. Shares outstanding increased by 27 percent since Nov. 5. Investors have poured in $717.8 million into the fund so far this month, after adding $283 million in October,” according to Bloomberg.
The International Energy Agency said the “massive cushion has inflated” on record supplies from Iraq, Russia and Saudi Arabia. Nevertheless, the IEA believes supplies outside of OPEC will dip next year by the most since 1992 as cheap crude helps price out costlier producers, such as the U.S. shale oil industry.
The current environment of low oil prices is doing exactly what OPEC wants: to squeeze out new high-cost energy producers – oil prices have plunged after a new surge in supply, largely from competitors like U.S. shale oil. According to OPEC sources, non-OPEC supply could amount to 58,2 million barrels per day by 2017, or some 1 million barrels per day lower than previous estimates.
“U.S. crude production slipped 3,000 barrels a day to 9.18 million while refineries boosted their operation rate to 90.3 percent, the most since September, according to the Energy Information Administration. Inventories increased for an eighth week in the seven days ended Nov. 13,” according to Bloomberg.
United States Oil Fund
