WTI crude ETF United States Oil (USO – Free Report) and Brent fund United States Brent Oil (BNO – Free Report) dropped 3.5% each on Jun 15 (read: Are Good Times Over for the Oil Patch? ETFs to Profit).
Inside the Pain
Though oil prices had a great start to this year, its course started reversing from late May courtesy of rising output concerns from two big players — Saudi Arabia and Russia. The duo has been reportedly mulling over pumping up more oil.
Oil investors have thus been edgy ahead of the looming OPEC summit in Vienna this week. But Iran, Venezuela and Iraq will likely oppose the duo’s proposal to increase output. This could lead to a clash among OPEC partners. Overall, crude has fallen more than 10% from its 3-1/2-year highs in May (read: Trump, Tariff & Geopolitics Lead May: 10 Top ETF Stories).
Moreover, trade tensions between China and the United States increased as the former said it would levy tariffs on some U.S. goods, including crude and gasoline, as a retaliation to President Donald Trump’s $50 billion levy on Chinese imports. Over the past six months, the United States’ crude export to China was an average 363,000 bpd. In fact, China along with Canada is the biggest purchaser of U.S. crude, per Reuters.
Whatever the case, we’ll have a clear idea after the Vienna meeting this week. Notably, the present deal, effective Jan 1, 2017, requires global oil producers to lower their collective output by 1.8 million barrels per day (bpd) to the end of 2018 to shed huge stockpiles.
How to Play?
Against this backdrop, investors aiming to cash in on the latest slump or expecting more declines in this liquid commodity can short oil and energy ETFs. Below we highlight a few choices.
SCO tracks the Bloomberg WTI Crude Oil Subindex to provide twice the inverse performance, on a daily basis of WTI crude oil (see all inverse commodity ETFs here).
The fund seeks to match the inverse performance of the spot price of light sweet crude oil.
Short Energy Stocks
This fund provides unleveraged inverse (or opposite) exposure to the daily performance of the Dow Jones U.S. Oil & Gas Index. The index looks to track the performance of the energy sector of the U.S. equity market.
This fund seeks two times (2x) leveraged inverse exposure to the daily performance of the Dow Jones U.S. Oil & Gas Index.
This product provides three times (3x) inverse exposure to the Energy Select Sector Index.
The United States Oil Fund LP ETF (USO) fell $0.16 (-1.20%) in premarket trading Tuesday. Year-to-date, USO has gained 10.66%, versus a 4.05% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Zacks Research.