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, and other oil exchange traded products have been struggling to start 2017. Data indicate some professional traders are expecting more downside for crude prices.
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.
“During a week that saw WTI crude prices erase all post-OPEC-production-cut-deal gains, after the Saudis admitted ‘cheating’ (but rapidly back-pedalled), oil speculators added almost 80,000 contracts to their short positions – the 2nd most in 34 years,” reports Zero Hedge.
Some oil traders believe 2017 will be fertile ground for an oil rally. 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.
However, some market observers believe the $60 per barrel level will be a tough mountain to climb for oil futures.
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.
“Both the IEA and OPEC see demand growth easing lower from last year’s pace. IEA sees demand growth slowing to 1.4mn bpd this year, from 1.6mn bpd in 2016, while OPEC sees it slipping from 1.38mn bpd in 2016 to 1.26mn bpd this year,” according to Zero Hedge. “While in isolation, this may seem bullish for prices, it does raise a key question: if the IEA is missing the target on demand, isn’t it just as likely to miss on its supply estimates?”
USO has seen almost $88 million in year-to-date inflows.
For more information on the crude oil market, visit our oil category.