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, are sporting double-digit losses over the past month, but some traders are ready to bet on a crude rally.
Further dragging on the oil outlook, OPEC and other forecasters have signaled that the global oil market could produce a surplus in 2019 on slowing demand, despite a dip in Iranian oil exports after U.S. sanctions recently went into effect. Over the past month, USO, one of the most heavily traded commodities exchange traded funds, is lower by more than 15%, but data indicate some traders believe a bottom for oil is near.
“The freefall in oil prices has sparked an almost directly inverse spike in option open interest on USO, most particularly on the call side of the equation. As of Friday, call open interest stood at a new 52-week high of 2.64 million contracts, while put open interest stood at a formidable peak of its own — 1.90 million contracts, in the 99th percentile of its annual range,” according to Schaeffer’s Investment Research.
Oil Inventory Issues
The pull back in oil prices has been attributed to increased production fro non-OPEC members, namely Russia and U.S. shale in anticipation of the drop off in supply from the Iran sanctions. However, OPEC meets this week and is widely expected to pare production to steady prices.
Oil recently endured its longest losing streak in 34 years. Further dragging on the oil outlook, OPEC and other forecasters have signaled that the global oil market could produce a surplus in 2019 on slowing demand, despite a dip in Iranian oil exports after U.S. sanctions recently went into effect.
“In the past 10 days alone, USO has garnered a call/put volume ratio of 2.35 across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) — indicating that traders have bought to open more than twice as many bullish bets as bearish over the past two weeks,” notes Schaeffer’s. “This ratio of calls to puts ranks higher than 85% of other daily readings over the past 52 weeks, even as USO hit a new low on the charts to end the week.”
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