Energy exchange traded fund traders who are hoping for a rebound may have to get use to the idea of a depressed oil market with a possibility of further downside over the short-term.
On Wednesday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate oil, declined 2.8%, trading to a new all-time low, and the United States Brent Oil Fund (NYSEArca: BNO) dipped 1.0%. Oil has been one of the worst performing areas of the market year-to-date, with USO falling 15.5% and BNO decreasing 16.8%. [Traders Fueling Oil ETFs’ Bearish Streak]
WTI crude oil futures were down 3.0% to $44.8 per barrel Wednesday while Brent crude futures were 1.7% lower to $48.8 per barrel.
For those with a high conviction of further weakness in the energy space, investors can consider inverse ETF options as a way to hedge. The United States Short Oil (NYSEArca: DNO) tracks the opposite moves of the West Texas Intermediate crude oil futures, ProShares UltraShort Bloomberg Crude Oil (NYSEArca: SCO) tries to reflect the two times inverse or -200% daily performance of WTI crude oil, VelocityShares 3x Inverse Crude (NYSEArca: DWTI) takes the three times inverse or -300% performance of crude oil, PowerShares DB Crude Oil Short ETN (NYSEArca: SZO) tracks the simple inverse of oil, and PowerShares DB Crude Oil Double Short ETN (NYSEArca: DTO) takes also follows a -200% performance of oil. [Inverse ETF Plays for a Bearish Oil Outlook]
Year-to-date, DNO rose 16.1%, SCO increased 30.7%, DWTI jumped 46.8%, SZO advanced 11.5% and DTO surged 31.3%.
Barclays and Goldman Sachs have both downwardly revised their oil market outlook for the year, Reuters reports.
Specifically, Barclays cut its 2015 Brent crude oil price estimates to $44 a barrel from $72. Goldman now expects WTI crude oil to trade around $40 per barrel for most of the first half but believes WTI oil could recover to $65 per barrel and $70 for Brent
“We expect to see further downside to prices in the next few months, with both WTI and Brent likely to trade into the high $30s before the oil price decline is arrested,” Barclays analyst Michael Cohen said in a note.
Observers point to deteriorating fundamentals, such as the Organization of Petroleum Exporting Countries’ refusal to cut output, non-OPEC supply growth and slowing consumption.
Along with the bearish outlook from investment banks, Oil prices dipped Wednesday after the U.S. Energy Information Administration revealed oil supplies increased by 8.9 million barrels in the week ended January 23, reports Timothy Puko for the Wall Street Journal.
United States Oil Fund
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