Oil ETFs: Is the Worst Yet to Come? | ETF Trends

Crude oil-related exchange traded funds continued to slip Tuesday, with West Texas Intermediate oil trading below $30 per barrel for the first time in over a decade, and observers warn there may be more pain ahead.

On Tuesday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, fell 3.0% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, dropped 3.1%.

Meanwhile,WTI futures were down 3.5% to $30.3 after briefly dipping to $29.97 per barrel, its weakest level since December 2003, Reuters reported. Brent oil futures were 2.6% lower to $30.7 per barrel after slipping to an intra-day low of $30.4 per barrel, its lowest since April 2004.

While crude oil prices are breaking down, Wall Street analysts anticipate further weakness ahead. Morgan Stanley analysts, including Adam Longson, head of energy commodity research, argue that investors are putting too much emphasis on fundamental factors and are not paying attention to an appreciating U.S. dollar.

Morgan Stanley pointed out that oil is leveraged to the dollar and may fall between 10% to 25% if the greenback appreciates 5%, reports Ben Sharples for Bloomberg.

The analysts argue that while the global supply glut has dragged oil below $60 per barrel, the stronger dollar accounts for the difference between a $35 per barrel and $55 per barrel price.