Related: A Factor that Could Hinder Oil ETF Investing
“Contango means you have an oversupplied market,” Bob Yawger, director of the futures division at Mizuho Securities USA, told Bloomberg. “The global numbers, outside of U.S. production, point to an oversupplied situation worldwide.”
When the one-year contango distended last year, an oil rebound turned into a rout.
“The market is in the process of rebalancing, but the overhang has not been wiped out yet,” Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd., told Bloomberg. “This will undoubtedly be messy, with the market moving too far in one direction before correcting.”
Related: Supply Concerns Linger for Oil ETFs
Investors who are wary of additional weakness in the oil market have a number of bearish options to choose from, like the simple inverse United States Short Oil (NYSEArca: DNO) and DB Crude Oil Short ETN (NYSEArca: SZO).
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. Lastly, the VelocityShares 3x Inverse Crude (NYSEArca: DWTI) takes the three times inverse or -300% performance of crude oil.
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United States Oil Fund