ETF Trends
ETF Trends

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 among this year’s most impressive commodities exchange traded products.

However, some market observers, citing supply and demand dynamics, believe oil is rallying without strong fundamental cause. A case can be made that oil’s rally is defying still troubling supply dynamics and tepid demand. Elevated levels of production remain an issue for oil as well. OPEC 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.

Related: Oil ETFs at 7 Month High on Falling U.S. Inventories

While production has declined in the U.S., recently rebounding oil prices are encouraging exploration and production companies to revisit spending plans with some increasing capital expenditures. That has some oil market observers concerned about a rising rig count and the subsequent impact on crude prices.

“The rig count in the highest initial production counties of the Permian Midland continues to march higher and is not far from its 2015 peak.” That’s impressive on its own, but the other thing that’s new is where all these new rigs are concentrated: in high-yield fields. This means that the ramp-up could be pretty significant,” according to Morgan Stanley by way of OilPrice.com.

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Goldman Sachs Group recently warned in a note that China, the world’s second-largest oil consumer and a major driver for global growth, will be trying to ward of another yuan devaluation as investors turn to the USD or Japanese yen and other safe-haven assets, according to the Wall Street Journal.

Related: A Very Bullish Call for Oil ETFs

“Oil producers in the shale patch are aware that they are walking a very fine line. Yet, they don’t really have a lot of options. Talk about rising drilling efficiency and official data that supports it doesn’t pay down debt, and this is what shale boomers have in abundance,” adds OilPrice.com.

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.

United States Oil Fund

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.