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, remain beholden to production from the Organization of Petroleum Exporting Countries (OPEC) and U.S. shale producers, but some analysts believe oil can deliver some upside.
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 the historic agreement between producers that went into effect Jan. 1 “induced a euphoric and unsustainable surge” in bullish bets by investors, that also set the stage for an inevitable sell-off as record fourth-quarter OPEC output and oil stored at sea moved to onshore sites, according to Citigroup,” reports Serene Cheong for Bloomberg. “Goldman Sachs has also made similar comments, saying ample inventories that have undermined the output cuts are set to shrink and calling for more patience from the market.”
Thanks to the shale boom, the U.S. is now a major oil exporter, which could threaten oil prices. In fact, China has become a major buyer of U.S. crude.
Citi “expects U.S. West Texas Intermediate oil to average $62 a barrel and global benchmark Brent crude to average $65 a barrel in the fourth quarter. WTI was trading 30 cents lower at $52.35 a barrel on the New York Mercantile Exchange at 10:34 a.m. London time on Tuesday. Brent on the ICE Futures Europe exchange was down 35 cents at $55.01 a barrel,” according to Bloomberg.
Active traders now have some new choices to profit from big moves in crude prices. ProShares rolled out the ProShares UltraPro 3x Crude Oil ETF (NYSEArca: OILU) and ProShares UltraPro 3x Short Crude Oil ETF (NYSEArca: OILD) debuted on Monday.
ProShares also offers 2x and -2x crude oil ETF plays. The ProShares Ultra Bloomberg Crude Oil (NYSEArca: UCO) takes two times or 200% daily performance of WTI crude oil and the ProShares UltraShort Bloomberg Crude Oil (NYSEArca: SCO) tries to reflect the two times inverse or -200% daily performance of WTI crude oil.
For more information on the crude oil market, visit our oil category.
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.