Oil Faces More Downward Pressure, DRIP ETF Doesn’t Mind

Oil prices fell below $30 a barrel during Monday’s raucous trading session as crude followed the Dow Jones Industrial Average downward. The world’s top oil producers, Saudi Arabia and Russia are still locking horns in a price war that is keeping prices low.

As market analysts continue to forecast lower demand for oil as a result of the coronavirus, this could lead to a massive supply glut.

“The last time that there was a global surplus of this magnitude was never. Prior to this, the largest six-month global surplus this century was 360 million barrels. What is coming will be twice that or more,” said Jim Burkhard, vice president and head of oil markets at IHS Markit.

Brent Crude Oil Spot Price data by YCharts

Weakness in oil prices through the rest of 2020 could drive gains for the Direxion Daily S&P Oil & Gas Exploration & Production Br 3X ETF (DRIP). DRIP seeks daily investment results that equal 300% of the inverse of the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index.

Here are a few other ETFs to play the weakness in oil:

1. DB Crude Oil Double Short ETN (NYSEArca: DTO): offers 2x daily short leverage to the broad-based Deutsche Bank Liquid Commodity Index-Oil, making it a powerful tool for investors with a bearish short-term outlook for crude oil futures and Treasury bills. Investors should note that DTO’s leverage resets daily, which results in a compounding of returns when held for multiple periods. DTO can be a powerful tool for sophisticated investors but should be avoided by those with a low-risk tolerance or a buy-and-hold strategy.
2. ProShares UltraShort Bloomberg Crude Oil (NYSEArca: SCO): offers 2x daily short leverage to the broad-based Dow Jones-UBS Crude Oil Sub-Index, making it a powerful tool for investors with a bearish short-term outlook for crude oil. Investors should note that SCO’s leverage resets on a daily basis, which results in a compounding of returns when held for multiple periods. SCO can be a powerful tool for sophisticated investors but should be avoided by those with a low-risk tolerance or a buy-and-hold strategy.
3. ProShares Daily 3x Inverse Crude ETN (NYSEArca: WTID): provides -3x exposure to its index for a one-day period. The daily reset function means investors holding WTID for longer periods are exposed to the effects of compounding and could see returns that vary significantly from -3x exposure. WTID’s Bloomberg index tracks oil futures contracts that are rolled every other month, striking a balance between spot-price sensitivity, turnover, and contango effects. As an ETN, WTID is backed by the credit of UBS, rather than futures and cash as in a commodity pool structure. Also, investors get 1099 at tax time instead of a K-1.

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