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ETF News And Commentary

After a strong summer, oil prices have been under a lot more pressure lately. Prices for the important commodity have retreated in weeks past, and now WTI crude is barely hanging on to the $101/bbl. mark, after hitting as high as $111 in August.

The reasons for this slide come down to the sluggish trading in oil following the declining worries over a Syrian conflict, and a huge supply of the commodity in the U.S. In fact, over the past few weeks, crude oil inventories have been on the upswing, putting extra pressure on prices for oil (read Safe Haven ETFs Slide As Syrian Tensions Cool).

This was further confirmed in the latest EIA Petroleum report, which showed that 6.8 million barrels of crude oil were injected into the crude oil inventory landscape in just the past week. And despite a pretty low refinery utilization rate (86%), gasoline supplies also increased, suggesting that demand was a little slack for the end product.

Thanks to this increase in supplies, total crude inventories now stand at 370.5 million barrels, and are near the top of the five-year range for this time of the year. The news helped to push down crude oil futures roughly 2.1% in Wednesday trading, while RBOB Gasoline also faced some modest selling pressure on the session as well.

Should this trend continue, we may see more trouble for oil in the near term, especially if consumers start to scale back thanks to D.C.-related issues. This suggests that investors may want to pay close attention to some of the ETFs tracking this space, including the group we have highlighted in greater detail below:

United States Oil Fund

This is the most popular oil ETF on the market, tracking the Bloomberg WTI Cushing Crude Oil Spot Index for its crude oil exposure. USO also has great volume at roughly six million shares a day, while its assets under management stand just shy of three-quarters of a billion.

USO slumped by 2.05% following the latest EIA report, pushing its five day return to -2.6%. Still, in YTD terms, USO is up over 10%, suggesting that the trend is still reasonably strong in this product (also see Crude Oil ETF Investing 101).

iPath S&P GSCI Crude Oil Index ETN

For an exchange-traded note take on the crude oil market, this popular ETN from iPath is an intriguing choice. The fund follows the S&P GSCI Crude Oil Index, a benchmark that tracks the returns available through an investment in WTI crude oil futures.

OIL is also a popular choice, although it is a basis point more expensive than USO, and its volume comes in at 500,000 shares a day. Still, the ETN was down about 2.1% in Wednesday trading, while its five day slump is now approaching 3%. It is also worth noting that OIL has outperformed in YTD terms though, as the product has added over 11% in the time frame.

United States Gasoline Fund

This product is slightly different than the other two on the list in that it follows a benchmark of RBOB gasoline instead of crude oil. This gives the product a different risk return profile, and it also makes the fund less sensitive to EIA crude oil changes.

Still, because gasoline is processed from crude oil, UGA will likely take some of its cues from what is happening in the WTI market. Other factors will undoubtedly be at play though, so pay close attention to consumer health, driving habits, and refinery utilization figures for this ETF (read Pump Profits with This Gasoline ETF).

It is also worth noting that UGA sees but a fraction of the popularity as its oil-based cousins, as just $50 million is invested, and average daily volume is just 30,000 shares a day.

In terms of performance, UGA has done the worst from a YTD look, as it has lost 4.8% in the time frame. The fund has outperformed lately though, as it lost just 0.3% following the EIA report and it is down 1.8% in the past five days.

Bottom Line

Although events were shaping up nicely for oil, there are definitely some concerns building over the space thanks to its recent slump. Geopolitical tensions have declined, while supplies remain robust, putting extra pressure on the important commodity (see all the Energy ETFs here).

This trend could definitely continue if the consumer is hurt by the Washington D.C.-related dysfunction, and if supplies remain robust in the weeks ahead. And given the string of supply builds (as evidenced by the EIA) this could definitely be the case in the near future, suggesting that the aforementioned ETFs need to be monitored closely by commodity investors.

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