The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, are two of this year’s best-performing exchange traded products, but as oil has rallied, calls for that rally to subside have grown louder.
With oil futures on a torrid pace in recent weeks, more and more market observers view crude as vulnerable to a near-term pullback. Some of the world’s largest producers continue to pump crude at record levels, with the Organization of Petroleum Exporting Countries maintaining Saudi Arabia’s strategy of squeezing out high-cost competitors.
Related: The Worst Could be Over for Oil ETFs
Fundamentals are improving in the energy market. For example, U.S., India and other major consumers are seeing increased demand, the Wall Street Journal reports. On the supply side, U.S. shale production has fallen off in response to the collapsed prices, and producers like Nigeria and Canada have experienced disruptions.
Goldman Sachs “explained that the restart of Canadian production, prospects of a solution to Nigerian outages, larger-than-expected output from OPEC members, and the risk of smaller-than-expected production declines as result of higher crude prices are likely to temper price gains going forward,” reports CNBC.
[related_stories]Saudi Arabia previously said it would join a production freeze deal if Iran agreed to curb output. However, Tehran has maintained that it should be allowed to raise production to previous levels before the introduction of Western sanctions over Iran’s nuclear program, instead arguing for individual-country production quotas.
Consequently, market observers believe that the failure of a deal reflects political differences that are undermining the organization, notably between the Sunni-led kingdom and the Shi’ite Islamic Republic.
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“But with Canadian disruptions expected to end by late June, and negotiations between rebels and the Nigerian government underway, the price driving effects of production interruptions could start to dissolve,” according to CNBC.
Traders looking to profit from falling oil prices have plenty of ETF options, including the ProShares UltraShort Bloomberg Crude Oil (NYSEArca: SCO), which tries to reflect the two times inverse or -200% daily performance of WTI crude oil, and DB Crude Oil Double Short ETN (NYSEArca: DTO), which also follows a -200% performance of oil, jumped 17.4%. Lastly, the VelocityShares 3x Inverse Crude (NYSEArca: DWTI) takes the three times inverse or -300% performance of crude oil.
For more information on the oil market, visit our oil category.
United States Oil Fund
