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, along with rival oil exchange traded products are having a tough time catching breaks in recent weeks.
It seems as though with each new day comes a new opinion from the professional community on oil.
For example, some professional traders do not see the current oil bear market lasting very long. Still, some concerned oil market participants 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.
However, some big banks are not enthusiastic in their current views on oil prices.
“The Wall Street Journal surveyed 13 investment banks on their predictions for Brent prices, and the average result was $56 per barrel for 2017, which was about $1 per barrel lower than the survey the WSJ conducted in June. The investment banks also don’t see oil prices bouncing back to $50 per barrel until the end of this year, which is a dramatic change from last year’s expectation that oil would hit $70 in 2016,” according to OilPrice.com.[related_stories]
On the other hand, recent options market data also reveal that market participants are not gearing up for a long-lasting oil bear market.
“The so-called put skew on December Brent and West Texas Intermediate options — the premium traders will pay for insurance that prices will fall rather than rise — has narrowed more than 30 percent since early July. The skew on second-month WTI contracts has fallen by almost half. That pullback in bearish sentiment fits in with the view that the worst of the oil rout is over and prices will recover as a global surplus continues to ease,” report Mark Shenk and Grant Smith for Bloomberg.
SEE MORE: A Very Bullish Call for Oil ETFs
Recent flows data suggest buyers have been stepping into USO, indicating that they believe oil’s current bear market is not one that will be long-lasting.
“But there is no guarantee that the price slide will reverse. In early trading on Thursday, WTI and Brent were back down. “Maybe the surprise drawdown in gasoline inventories helped future prices remain stable but that does not change the fact: the U.S. is flooded with oil,” Tamas Varga, lead oil analyst PVM Oil Associates, told Reuters.
For more information on the Oil ETFs, visit our Oil category.
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.