December Could be Unkind to This Oil ETF

Oil prices and the related exchange traded funds have recently rallied in epic fashion, but traders should note December can be unkind to some oil ETFs. That includes the PowerShares DB Oil ETF (NYSEARCA: DBO).

DBO, which is nearly 11 years old, follows the DBIQ Optimum Yield Crude Oil Index Excess Return Index. DBO “is designed for investors who want a cost-effective and convenient way to invest in commodity futures. The Index is a rules-based index composed of futures contracts on light sweet crude oil (WTI),” according to PowerShares.

Current OPEC compliance with production cut plans remains above their historical average, and it usually takes between two to three quarters for inventories to normalize after the cuts. While demand has yet to catch up to elevated supplies, rebounding economies in Europe and steady economic growth in the U.S. could prompt more upside for oil next year, but DBO first has to contend with its dubious December track record.

Saudi Arabia is the largest producer and kingpin in the Organization of Petroleum Exporting Countries (OPEC). For its part, OPEC remains concerned about the level of production by U.S. shale producers and the cartel is urging its U.S. rivals to pare output to support prices. According to the Energy Information Administration, crude oil product could hit 9.9 million barrels per day in 2018, which surpasses the prior high reached in 1970 of 9.6 million barrels per day.

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