Oil Stocks Pare Losses as Focus Shifts from OPEC to EIA

While OPEC's policy decision was no good for oil stocks, a drop in weekly crude inventories has helped oil prices to stabilize

Jun 2, 2016 at 11:42 AM
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Crude prices and oil stocks are tumbling, after the Organization of the Petroleum Exporting Countries (OPEC) decided against changing its output policy, as expected. While crude oil has pared its losses after the Energy Information Administration (EIA) announced a 1.4 million barrel drop in weekly inventories, black gold remains lower. This much is clear when looking at the VelocityShares 3X Long Crude ETN (UWTI) and the United States Oil Fund LP ETF (USO), which are both down sharply.

At last check, UWTI has plunged 3.5% to trade at $35.63, buckling under the weight of its 150-day moving average. Year-to-date, the exchange-traded note (ETN) is off 10% -- though it's also come a long way since touching a record low of $11.70 on Feb. 11.

Like the VelocityShares 3X Long Crude ETN, USO is struggling, off 1.3% at $11.78. Yet, on a longer-term basis, the exchange-traded fund (ETF) is up a market-beating 7% year-to-date. More recently, USO has outperformed the broader S&P 500 Index (SPX) by 22.3 percentage points over the past two months.

If options traders have their druthers, the ETF will extend its slide. During the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open nearly two USO puts for every call. The resultant put/call volume ratio of 1.80 sits just 6 percentage points from an annual peak.

Of course, it's possible the recent put buying on the United States Oil Fund LP ETF (USO) has come at the hands of shareholders. Simply put, traders who are long USO may have been looking to hedge against an unforeseen pullback in the shares.

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