United States Oil (USO) ETF Bails Out Of June WTI Futures

Posted Monday, April 27, 2020 by
Shain Vernier • 2 min read

Fresh storage concerns have energy traders dumping crude oil futures to open the week. June WTI has plummeted more than $4.00 per barrel, a staggering 25% plunge. In response to the volatility, the United States Oil Fund (USO) ETF has announced it is exiting the June WTI futures contract. This decision comes on the heels of massive 2-week losses and the fund conducting an 8:1 reverse-split.

USO’s move will have a significant impact on the price of oil. As a multi-billion dollar fund, USO holds a tremendous number of WTI futures contracts. Their swift departure from the market has placed added pressure on June WTI and played a major role in today’s bearish action.

USO Flees June WTI, Retail Traders Follow

In a Weekend Update from last Saturday, I broke down the 20-21 April oil crash and market fallout. If you missed it, feel free to check it out here.

Thus far, my predictions in the Weekend Update have proved incorrect. After a strong Friday close, June WTI has plunged beneath the daily 38% Fibonacci retracement level. Production cuts and the COVID-19 economic reopen have failed to kickstart a WTI rally ― at least, not yet.

June WTI Crude Oil Futures (CL), Daily Chart
June WTI Crude Oil Futures (CL), Daily Chart

Here are three levels to watch as the week progresses:

  • Resistance(1): 38% Retracement, $16.68
  • Support(1): Big-Round-Number, $10.00
  • Support(2): Spike Low, $6.50

Overview: The coming week is going to be a big one for June WTI crude. As the month of April draws to a close, bearish sentiment is dominating the action. If we see their grip loosen going into May, a pre-summer rally may be just around the corner.

Unfortunately for retail traders, oil futures-based ETFs like USO are inconsistent ways of engaging the oil markets. Emergency portfolio adjustments, tracking errors, and surprise reverse-splits undermine the instrument’s integrity. Unless we see a major bullish bump in WTI values, USO may be in danger of delisting by the end of June.

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