Crude oil-related exchange traded funds are continuing their downward spiral as the global supply glut distends on increased production out of the Organization of Petroleum Exporting Countries.
On Friday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, fell 2.3% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, dropped 1.7%. Year-to-date, USO declined 34.4% and BNO decreased 33.8%.
Nymex WTI crude oil futures were 3.1% lower to $40.5 per barrel Friday while ICE Brent Crude futures were down 0.9% to $43.7 per barrel.
Crude oil prices were slipping after the International Energy Agency revealed oil stockpiles have grown to a record of almost 3 billion barrels in September, a month when inventories typically decline, as growth remained “significantly above the historical average,” reports Grant Smith for Bloomberg.
“Brimming crude oil stocks” offer “an unprecedented buffer against geopolitical shocks or unexpected supply disruptions,” the agency said. With supplies of winter fuels also plentiful, “oil-market bears may choose not to hibernate.”
The IEA said the “massive cushion has inflated” on record supplies from Iraq, Russia and Saudi Arabia.
Additionally, oil prices could see further weakness as Iranian crude hits the market after sanctions on its nuclear program are lifted, reports Angelina Rascouet for Bloomberg.
Investors can utilize a number of inverse or bearish ETF options to hedge against further declining energy prices. For instance, the United States Short Oil (NYSEArca: DNO) tracks the opposite moves of the West Texas Intermediate crude oil futures, and the DB Crude Oil Short ETN (NYSEArca: SZO) also tracks the simple inverse of oil. Over the past month, DNO gained 13.3% and SZO rose 13.4%. [Leveraged ETFs Are Popular Plays Among Swing Traders]
For the more aggressive trader, there are number of leveraged options, including the ProShares UltraShort Bloomberg Crude Oil (NYSEArca: SCO), which tries to reflect the two times inverse or -200% daily performance of WTI crude oil, and DB Crude Oil Double Short ETN (NYSEArca: DTO), which also follows a -200% performance of oil, jumped 17.4%. Lastly, the VelocityShares 3x Inverse Crude (NYSEArca: DWTI) takes the three times inverse or -300% performance of crude oil. Over the past month, SCO increased 24.0%, DTO advanced 28.1% and DWTI surged 40.6%. [ETFs to Hedge Against a Grim Oil Outlook]
Meanwhile, the retreating oil prices are also exacting a tole on many markets, notably international economies that are heavily tied to crude oil exports. For instance, the iShares MSCI Canada ETF (NYSEArca: EWC), which has a 20.6% tilt toward the energy sector, has dropped for an eighth day, the worst period of consecutive declines since the financial crisis, and has fallen 7.8% over the past month. Additionally, the Market Vectors Russia ETF (NYSEArca: RSX), which has a 42.9% weight toward energy, was 4.7% lower over the past month.
Nevertheless, the IEA believes supplies outside of OPEC will dip next year by the most since 1992 as cheap crude helps price out costlier producers, such as the U.S. shale oil industry.
United States Oil Fund
For more information on the crude oil market, visit our oil category.
Max Chen 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.