ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Free Cash Flow
    • Future ETFs
    • Global Diversification
    • Gold/Silver/Critical Minerals
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Market Insights
    • Megatrends
    • Modern Alpha
    • Multi-Asset
    • Night Effect
    • Portfolio Strategies
    • Retirement Income
    • Richard Bernstein Advisors
    • Tax Efficient Income
    • Thematic Investing
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • Company
    • About Us
    • Swag Store
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Oil in 2016: Volatile as Ever
News
Share

Oil in 2016: Volatile as Ever

Stoyan BojinovJan 07, 2016
2016-01-07

Energy bears were reawakened in the kick off of 2016 after Wednesday’s feeding frenzy in the crude oil futures market sent prices plunging to fresh lows, breaking the $35/barrel level.

Amid a flurry of new disappointing developments on both the supply and demand side in just a few short days, downward price pressures in the oil futures market are showing no signs of easing up.

Crude Oil Prices Break Below $35 a Barrel

Oil futures plunged to levels not seen in over a decade on January 6, 2016 in light of several fundamental factors colliding to form a perfect storm (more on that below). The pain in the energy market has only worsened much to the bulls’ frustrations:


Content continues below advertisement

crude oil futures and uso returns

Over the past two months alone (11/9/15-1/6/16), crude oil futures (black line) and the oil ETF (USO B) have shed over 25% each, with the latter leading to the downside. The early price action we’ve seen thus far in the new year may very well be setting the stage for a third year in the oil bear market saga.

What’s Behind the Plunge?

Let’s examine the fundamental price drivers responsible for oil’s most recent leg-lower.

On the supply side:

  • Diplomacy gone sour between Saudi Arabia and Iran over the weekend has cast a great cloud of uncertainty that the already merciless OPEC would come to agreement with regards to cutting back on production.
  • The EIA released its weekly petroleum status report on Wednesday morning and traders were greeted with more news of growing production (this time at home), which only added to the oversupply pressures already facing the oil market.

On the demand side:

  • China, the world’s largest net importer of oil, posted another round of worse-than-expected economic data after a weak services sector reading sent slowing oil demand fears across the market. This release only magnified the negative manufacturing data seen on Monday which helped spark the global equity market sell-off.
  • Lackluster factory orders and ISM non manufacturing data releases on the home front the same day didn’t help on the demand side one bit.

And last but not least, let’s not forget about the U.S. dollar remaining stubbornly strong, which only adds to the price pressures facing crude oil.

When we consider all of the above, it’s no mystery that crude oil prices remain under strenuous pressure, and will likely remain volatile, given the persistent fundamental headwinds at hand.

Crude Oil Outlook

Where do we go from here? We all know that markets are cyclical, but the painful phases can often outlast our patience and risk tolerance. Put another way – the market can remain irrational longer than you can remain solvent.

Who really knows how long it might take for oil to bottom, let alone begin to rebound for real – and even assuming that it does, what’s to say we’ll see the same level of demand ever again in light of growing adoption of alternative energy sources in every aspect of our lives, all around the world.

One expert that got it right in 2015 is predicting a rough road ahead for oil prices this year again. Tom Kloza, founder and global head of energy analysis at data provider Oil Price Information Service expects for WTI futures prices to hit $32 a barrel in 2016; he also believes that a recovery to $55/barrel is also potentially in the cards in his eyes.

Ways to Play

Investors can play the oil market in a number of ways, including commodity as well as equity-based funds:

  • Crude Oil ETPs
  • Broad Energy ETFs

Traders can get very granular with their product selection on the equity side:

  • Oil & Gas Exploration & Production ETFs
  • Oil Equipment & Services ETFs
  • Unconventional Oil & Gas ETFs
  • MLPs ETPs

The Bottom Line

The last time I wrote about oil was on December 8, 2015 following a plunge to fresh lows. My conclusion then carries over to this scenario quite perfectly: the biggest factors at work driving oil prices lower aren’t showing signs of reversing yet, so be careful with “bargain priced” buys in the energy sector right now.

Follow me @SBojinov

Image courtesy of suwatpo at FreeDigitalPhotos.net

» Popular Pages

  • Tickers
  • Articles

Feb 08

Exchange and Junior Achievements Build Community

Feb 08

China's Aggressive Clean Energy Stance Sets Up This ETF

Feb 08

Earnings, the Economy, and the Market’s Reality

Feb 08

California’s Aggressive Climate Measures Puts this ETF in Play

Feb 08

As Financial Companies Embrace Blockchain, Look at BLKC

Feb 08

Get Exposure With This ETF as Industries Rely on AI

Feb 08

The 2023 Case for Diversification, China, and FLCH

Feb 08

What ESG Packaging Says About ESG Investing

Feb 08

What's Next as Crypto Takes an Early February Breather

Feb 08

Don’t Sleep on Nationwide's Risk-Managed ETFs' Yield

QQQ

Invesco QQQ Trust

SPY

SPDR S&P 500 ETF Trust

VOO

Vanguard S&P 500 ETF

VGT

Vanguard Information...

SMH

VanEck Semiconductor ETF

XLK

Technology Select Sector SPDR...

VTI

Vanguard Total Stock Market...

SOXX

iShares Semiconductor ETF

BLOK

Amplify Transformational Data...

META

Roundhill Ball Metaverse ETF


Content continues below advertisement

Loading Articles...
Help & Info
  • Contact Us
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X