Oil ETFs: Long Losing Streaks Can be Hard to Erase

Last Friday, crude oil futures extended their losing streak to 10 consecutive days, extending the month-to-date loss for the United States Oil (NYSEArca: USO) to just over 15%.

Oil analysts point to a combination of higher-than-expected output from key producers and a gloomy outlook for oil demand. The decline in prices is an about-face from last month’s rally that saw oil hit four-year highs based on the assumption that supply would be crimped due to reduced output from Iran as a result of the U.S. leveling sanctions.

Among the factors hindering oil prices are rising supply. For instance, the world’s top three producers – the U.S., Russia and Saudi Arabia – are pumping at record levels.

“Saudi Arabia, OPEC’s biggest producer and the world’s top crude exporter, intends to cut shipments by 500,000 barrels a day in December, Khalid al Falih, the country’s energy minister said on Sunday,” reports CNBC.

Be Careful Buying The Dip

Long losing streaks, such as the one USO is dealing with, have a way of inviting dip buying, but USO’s history suggests traders such take a more cautious approach. As the chart below indicates, USO, which tracks front-month West Texas Intermediate futures, can remain downtrodden for a while after lengthy losing streaks.

Courtesy: Bloomberg