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 lower by an average of 6% over the past week.
As if that is not bad enough, some oil market observers see more declines coming for crude. Oil traders are concerned over how fast U.S. shale oil producers will increase production to capture the rising prices.
Rig counts have recently ticked higher and with credit and earnings issues improving for some U.S. shale drillers, those companies may seize the opportunity to exploit higher pricing in the near-term.
While OPEC is cutting back to alleviate price pressures, U.S. fracking companies could jump to capitalize on the windfall as crude oil prices jump back above $50 per barrel – according to some estimates, shale oil producers can get by with oil at just over $50 per barrel due to advancements in technology and drilling techniques that have helped cut down costs.
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.
For now, bullish speculators appear to be taking a break from oil.
“John Kilduff, founding partner at energy hedge fund Again Capital said oil’s more than 5 percent plunge to roughly three-month lows on Wednesday was the final nail in the coffin for speculators. The high trading volume indicates they are selling out of their bullish positions,” reports CNBC.
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.
“Meanwhile, Kilduff noted, oil drillers were busy hedging their production, a practice in which they lock in a cost for delivery of crude to protect against future price declines,” according to CNBC.
For more information on the crude oil market, visit our oil category.