The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), have been scuffling in recent days with oil market observers closely watching the $40 per barrel level. While some oil traders are not anticipating a significant decline in crude prices, traders are cautious about the commodity’s near-term upside potential.
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.
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Obviously, production is a key element in the decision-making process regarding energy investments. Currently, oil investors face conflicting reports regarding output. For example, Venezuela’s crude output is plunging to multi-year lows while Algeria is looking to boost production. Both countries are members of the Organization of Petroleum Exporting Countries (OPEC).
“High levels of refined products are weighing on the market (more below), and while all major analysts see the market continuing down the path towards supply/demand balance, there is disagreement over how quickly that will arrive. In the very short-term, there do not seem to be a lot of bullish catalysts on the horizon, although weekly EIA data could provide a lift if stock drawdowns are stronger than expected,” according to OilPrice.com.
[related_stories]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.
Investors who are wary of additional weakness in the oil market have a number of bearish options to choose from, like the simple inverse United States Short Oil (NYSEArca: DNO) and DB Crude Oil Short ETN (NYSEArca: SZO).
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For the more aggressive, bearish trader, there are number of leveraged 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. Lastly, the VelocityShares 3x Inverse Crude (NYSEArca: DWTI) takes the three times inverse or -300% performance of crude oil.
United States Oil Fund
