The United States Oil Fund (NYSEArca:USO), which tracks West Texas Intermediate crude oil futures, has recently shown some signs of life, but the widely followed oil exchange traded product has plunged more than 22% year-to-date, officially putting it a bear market.
Even with that tumble, investors continue allocating capital to the downtrodden USO. While the Organization of Petroleum Exporting Countries have moved to cut production, expectations of continued U.S. shale production remain a deterring factor.
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.
“The ETF, which holds futures contracts on WTI crude, has become an unlikely magnet for investor cash whenever the price of oil crashes,” reports Carolina Wilson for Bloomberg. “Take the week ended March 10, when crude fell 9 percent and the fund, symbol USO, took in $80 million. Or the first week of November, when a barrel of WTI lost more than $4 — investors still poured money into the fund.”
Related: Bearish Signs Continue for Slumping Oil
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.
“In fact, stories that suggest oil is in a bear market may even have a positive impact on crude prices, according to a Bloomberg analysis. When news reports that include the key words “bear market” and “oil” start to appear in large numbers, prices often rally afterward, the analysis shows,” according to Bloomberg.
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.
For more information on the crude oil market, visit our oil category.