Crude oil prices plunged to 11-year lows and energy commodity-related exchange traded funds dipped toward an all-time low as rising supply, a weak China, OPEC discord and strong U.S. dollar fuel the perfect storm.
On Wednesday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, declined 5.1% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, decreased 5.7%. Both crude oil futures-backed ETFs were trading at all-time lows. WTI crude oil futures were down 5.0% to $34.2 per barrel while Brent crude was 5.4% lower to $34.4 per barrel.
Meanwhile, in the U.S. equities market, energy was the worst performing sector on Monday, with the Energy Select Sector SPDR (NYSEArca: XLE) down 3.8%, compared to the S&P 500’s 1.2% retreat. Among the worst sub-sector categories, energy funds that track the hydraulic fracturing industry and explorers & producers brought up the rear, with the Market Vectors Unconventional Oil & Gas ETF (NYSEArca: FRAK) down 6.1% and SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) down 6.6%.
On the other hand, investors who hedged oil exposure were capitalizing on the energy market’s turn. For instance, the simple inverse United States Short Oil (NYSEArca: DNO) was 5.0% higher Monday while the DB Crude Oil Short ETN (NYSEArca: SZO) was up 4.6%. 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. SCO advanced 9.3%, DTO jumped 8.5% and DWTI surged 14.8%. [Don’t Bet on an OPEC Boost for Oil ETFs]
Oil prices dropped below $35 per barrel for the first time since 2014 on Wednesday after the U.S. Energy Information Administration revealed U.S. stockpiles of gasoline and distillates surged in the week ended January 1, adding to concerns that the global glut in oil has fully not run its course, reports Nicole Friedman for the Wall Street Journal.
Looking overseas, concerns over Chinese oil demand also pressured prices. China revealed that its service activity expanded at a slower-than-expected pace, which has fueled pessimism over a potential slowdown in the second largest oil-consuming country in the world. [China ETFs Suffer New Year Hangover ]