By Oleum Research

  • DWT hits an all-time low, after phase 1 trade agreement between China and the U.S.
  • Speculators boosted significantly long commitments on oil futures, bringing headwinds on DWT.
  • Oil fundamentals tightened in the past weeks, but excessive overconfidence in crude markets favors DWT prices.
  • We are long on DWT.

Investment thesis

The VelocityShares 3x Inverse Crude oil ETN (DWT) seeks to replicate 3x the daily inverse returns of S&P GSCI Crude oil Index ER, net of expenses. DWT is an interesting vehicle to invest in crude markets, thanks to its high leverage and a reasonable expense ratio of 1.5%. The ETN is designed as a trading tool, not a buy-and-hold investment, providing exposure to front-month WTI crude oil future contracts.

We are initiating a bullish positioning on UWT, after the positive geopolitical developments seen in the past weeks. With OPEC+ agreeing to cut production quotas and trade tensions between U.S.-China cooling down, we believe that the excessive long sentiment on crude is poised for a setback.

In this context, any unwelcoming news is likely to trigger an unwinding in speculative positionings. Therefore, we are initiating a bullish positioning on DWT, with a target price of $5 per share in the next month.

DWT ETF Performance Investing Chart

Source: TradingView

Crude oil optimism tops after Sino-American trade tensions relieve

The U.S.-China trade deal announced on Friday lifted WTI crude oil front-month futures to the highest closing level, since mid-September. The trade relief between the world’s two giants should help oil demand next year and strip off worries regarding a possible supply-demand imbalance expected for the beginning of 2020. This constructive news contributed to push WTI crude prices above $60 per barrel, a key number for oil prices, given that above that level shale producers can profitably add more rigs and thus increase oil output.

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