A crash in oil prices to record lows has forced managers at popular oil ETF, the United States Oil Fund to swing into action and stave off additional losses. The managers have had to make structural changes to the popular ETF, as oil outlook remains bearish after the recent selloff
USO ETF Changes
The fund managers have confirmed plans to invest in varying oil futures contracts with regulatory filling, indicating that money has already been spent on oil contracts for August Delivery. Initially, the oil ETF invested in futures contracts of the nearest month, while rolling to the next month’s contract two weeks to expiration. The Fund has also suspended the issuance of the so-called creation baskets which amounts to the creation of new shares to meet demand.
The structural changes were necessitated with oil prices plunging to record lows. May contract for oil fell to the negative territory in the Monday trading session. A plunge to the negative territory meant that holders of U.S crude contracts had to pay buyers $30 a barrel to take it off their hands.
While oil prices have bounced back from the negative territory, the outlook remains bearish, given the lack of demand in the market needed to prop up prices.
TIME : 22-04-2020
PIVOT : $13.02
TECHNICAL VIEW : Short below $12.02
TARGET : $6.54
The oil futures contract for June have already started cratering, affirming the strong bearish force in the oil market. A 40% decline in oil contract for June and a 20% decline for July contract, in Tuesday trading session all but affirmed the fact that investors do not expect fundamentals in the oil industry to improve anytime soon.
Reports that about 40 million barrels of Saudi Arabia Oil is on its way to the U.S might, as well, be the final dagger to take oil prices even lower. The U.S is already grappling with a glut in the supply of which additional supply will only worsen the situation. As it stands, oil prices will remain subdued at all-time lows given the low demand.
A plunge in oil prices to record lows id already having a ripple effect, with the stock market coming under pressure as well. The Dow Jones Industrial Average fell 631 points or 2.7%, with the broader S&P 500 dropping 3% in the wake of the onslaught in the oil markets.