Oil prices slumped to five-month lows Thursday, dragging on the already slumping 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.
Some of the struggles of oil and the energy sector this year can be pinned on investors’ concerns regarding the ability of major oil-producing nations, including the Organization of Petroleum Exporting Countries (OPEC), to effectively reduce production.
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.
“Weekly U.S. government data on Wednesday showed crude stocks fell 930,000 barrels, less than half the 2.3 million barrel drop analysts had expected. Stocks stand just 7 million barrels off a record high,” reports CNBC.
Some market observers note that OPEC’s importance in charting the course for oil prices is being diminished as U.S. shale producers rush to up production. OPEC output has declined for several straight months while Russia, the largest non-OPEC producer, has been trimming production since late 2016. Yet, oil prices continue sliding, proving the point that U.S. production is contributing to lower prices.
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.
Oil’s slump “worsened after OPEC delegates downplayed the chance that their group and other producing countries would deepen their output cuts when they meet on May 25. They did say current output cuts were likely to be extended,” according to CNBC.
Risk-tolerant traders looking for leveraged plays on oil prices can consider the newly minted ProShares rolled out the ProShares UltraPro 3x Crude Oil ETF (NYSEArca: OILU) and ProShares UltraPro 3x Short Crude Oil ETF (NYSEArca: OILD), which debuted in March.
OILU and OILD will try to reflect the daily performance that is 3x and -3x, respectively, of the underlying Bloomberg WTI Crude Oil Subindex. The two ETFs will gain exposure to the benchmark by investing in listed futures contracts for West Texas Intermediate sweet, light crude oil futures contracts.
For more information on the crude oil market, visit our oil category.