Oil ETFs Are Getting Interesting Again

Following some bullish inventories data released this week, some traders are renewing their interest in oil-related exchange traded products, including the United States Oil Fund USO. USO, the most heavily traded oil exchange traded product, tracks West Texas Intermediate futures.

USO is up about 1 percent over the past week and more than 4 percent over the past month. Those aren't jaw-dropping performances, but those data points are still better than what was seen with USO and rival ETFs earlier this year. USO is lower by 14 percent year-to-date.

“The U.S. Energy Information Administration reported that gasoline stockpiles fell by 8.4M barrels in the week ended Sept. 8, while stocks of distillates fell by 3.2M barrels, also exceeding analyst expectations; meanwhile, U.S. refineries ran at at only 78% of operable capacity, allowing commercial crude oil stocks to rise by 5.9M barrels to 468.2M,” according to a post on Seeking Alpha.

USO Options Action

Thursday brought an uptick in options activity in USO.

“Institutional fund managers that are enacting hedges and/or making directional trades on the commodity itself still will go to USO options in many cases instead of (or possibly in tandem with) Crude Oil futures themselves,” said Street One Financial Vice President Paul Weisbruch. “Thursday for example, we are seeing bullish looking options trading in USO clearly tied to the momentum based move in the underlying, where participants are selling October 9 puts in USO and purchasing October 11 calls. USO has not traded with a $11 handle since April, so clearly options players here foresee further potential upside in Crude Oil itself via USO.”

Additionally, investors have recently been showing some appetite for USO itself.

“USO has seen modest inflows in the trailing one month period (+$49 million in) but net outflows year-to-date of about $240 million,” said Weisbruch. “Still, the fund continues its asset supremacy in the space in terms of listed Crude Oil tracking ETPs, and given the observation we made above in regards to its listed options, this may never change.”

Leveraged Love

Other, more adventurous traders are showing enthusiasm for leveraged energy sector ETFs. For example, the Direxion Daily Energy Bull 3X Shares ERX has averaged daily inflows of over $1 million over the past month, according to issuer data.

ERX attempts to deliver triple the daily returns of the S&P Energy Select Sector Index. The Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares DRIP, a triple-leveraged play on exploration and production equities, has averaged daily inflows of more than $1.1 million over the past month, according to Direxion.

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