The United States Oil Fund (NYSEArca: USO) was one of this year’s best-performing commodities exchange traded products, but that changed recently as the widely followed oil fund fell into a new bear market. In early June, USO was trading over $12. Now, it resides below $10.
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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Following USO’s recent reentry into a bear market, data suggest some traders are buying the dip.
“Investors in the biggest exchange-traded fund that tracks oil prices last week piled in even as crude had the biggest drop since April. The U.S. Oil Fund attracted $126.6 million last week, the best inflow since February. West Texas Intermediate crude retreated 5.9 percent last week to settle at $41.60 per barrel,” reports Ryan Sachetta for Bloomberg.
[related_stories]Oil bulls have to contend with a familiar factor: The dollar. Although the Federal Reserve appears increasingly unlikely to raise interest rates this year, the greenback has recently been rallying, weighing on oil prices in the process.
Last week, the Federal Open Market Committee (FOMC) meeting minutes revealed the Fed is concerned about the U.S. labor market. That is prompting some traders to think an interest rate hike this year is nearly out of the question, making the dollar’s recent rally all the more impressive.
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.
SEE MORE: A Very Bullish Call for Oil ETFs
The third quarter is historically unkind to the energy sector, but some industry observers believe the recent pullback in crude prices is not a cause for alarm and that there is still upside available with some large-cap energy equities.
For more information on the Oil ETFs, visit our Oil category.
United States Oil Fund
