Oil exchange traded products, such as the popular United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, will be spending plenty of time in the limelight in the coming weeks as the Organization of Petroleum Exporting Countries (OPEC) inches toward another meeting.
Plenty of traders and oil market observers believe crude remains vulnerable to a near-term downside. Many traders remain bearish over the short-term, betting on weakening seasonal trends.
OPEC plans to diminish output to a range of 32.5 to 33.0 million barrels per day from its current estimated output of 33.24 million barrels per day. While Saudi Arabia, OPEC’s biggest producer, has agreed to reduce output, Iran, Libya and Nigeria might not follow suit.
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.
Related: A Factor that Could Hinder Oil ETF Investing
Some market observers believe that oil is already overpriced and that when OPEC meets later this month, the cartel will not be able to deliver news to oil traders that merits prices as high as those currently seen in the market.
“Even if the fear of such low prices leads OPEC to deliver an agreement on November 30, we reiterate our view that the odds of it succeeding are low (see Higher probability of a cut, still low odds of success,” according to a Goldman Sachs noted posted by Johanna Bennett of Barron’s.
“We continue to see a $47-$55 range for WTI heading into the November 30th OPEC meeting believing that falling crude oil and refined products stocks, the potential for a bullish OPEC announcement and managed money’s eagerness to buy dips in oil have raised the floor for the market while high levels of existing supplies, tepid demand growth and bottoming LTO production should keep rallies in check,” reports OilPrice.com.
[related_stories]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. Russia has also signaled it might trim output as much as some traders have hoped for.
SEE MORE: Energy ETFs Rally as Russia Joins OPEC in Considering Supply Limits
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.
For more information on the oil market, visit our oil category.
DB Crude Oil Double Short ETN
