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Oil ETFs Tank — Relief at the Pump for Consumers?


Oil exchange traded funds slipped as the biggest drop in crude futures prices for the past three months has set in. Oil and energy shares took big losses, signaling relief at the pump possibly in time for the holidays.

As for the short-term outlook on oil prices, “the selloff could be further fueled in the upcoming days due to the restart of the Keystone pipeline…and [Wednesday's] expectation of another build for crude” supply, Tariq Zahir, managing memeber at Tyche Capital Advisors, wrote in emailed comments Tuesday.

United States Oil Fund (USO) lost 3.4%, the biggest loss in the past three weeks, reports Carla Mozee for MarketWatch. This widely traded ETF has taken a hit due to oil spot prices dropping 2.90%, down to $85.67 per barrel. The focused energy ETF Energy Select Sector SPDR (XLE) lost 2.33% over the same time period. [Four ETFs for an Oil Rebound]

Oil ETFs, like other commodities, had been stuck in a sideways market for the past few days until last week when the funds began to edge closer to oversold levels, reports John Nyaradi for Wall Street Selector. The $90 per barrel mark is the level that is considered profitable for oil, and anything under is signaling cheap oil prices in the future.

The tensions between the U.S. and Iran are under speculation, and if they heat up, investors can expect oil prices to rise yet again. Iranian oil minister Rostam Qasemi reported that Iran will stop oil exports if the U.S. and Europe add more sanctions to the ones already imposed. [Oil ETFs Slip with China's Growth]

In general, oil prices follow equity markets and the general sentiment in the stock market. They are also sensitive to economic cycles and the supply and demand model. The lower oil prices may signal relief for consumers at the gas pump, and just in time for the holiday season. [Commodity ETFs to Fight Inflation]

The United States 12 Month Oil Fund (USL) reflects the price of oil delivered to Cushing, Oklahoma and reflects the average of the next 12 months of oil futures contracts on The New York Mercantile Exchange. The fund lost 2.47% earlier in the week. The PowerShares DB Oil Fund (DBO) lost about 3%.

United States Oil Fund

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.