It’s an excellent time to be a bear when it comes to oil prices after Saudi Arabia cut its oil prices in retaliation to Russia’s refusal to cut production. In early trading in Monday’s session, oil prices fell as much as 30%, which is welcome news for inverse ETP traders in crude.
“This has turned into a scorched Earth approach by Saudi Arabia, in particular, to deal with the problem of chronic overproduction,” John Kilduff, founding partner of Again Capital, told CNBC.
As of 2:30 pm ET on 3/9, WTI crude was at $34.06, and Brent crude was at $36.93, with analysts expecting more weakness ahead.
WTI Crude Oil Spot Price data by YCharts
Brent Crude Oil Spot Price data by YCharts
″$20 oil in 2020 is coming,” said Ali Khedery, formerly Exxon’s senior Middle East advisor and now CEO of U.S.-based strategy firm Dragoman Ventures. “Huge geopolitical implications. The timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc. – may prove existential 1-2 punch when paired with COVID19.”
Here are a few ETFs to play the weakness in oil:
- 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.
- 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.
- 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.
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