The Best ETFs To Bet Against Crude Oil (SCO)

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June 9, 2017 5:56am NYSE:SCO

NYSE:SCO | News, Ratings, and Charts

From Zacks: The pain in the oil patch seems to be prolonging as the U.S. Energy Department’s inventory release showed that crude stockpiles recorded an unexpected build. This hurt oil prices that were already hit by geopolitical concerns.

WTI crude ETF United States Oil (USOFree Report) and Brent crude ETF United States Brent Oil (BNOFree Report) went lower by about 5% and 4%, respectively on June 7, 2017.

The EIA report showed that domestic crude built increased by 3.3 million barrels last week, much higher than the consensus estimate of a draw of 3.1 million barrels. Gasoline inventory was also up by 3.3m barrels, diverging widely from the estimated 275,000-barrel decline. As per an article published on Financial Times, this indicates a slackening in demand.

Going forward, the Fed may hike rates in mid-June, which in turn can result in higher U.S. Treasury bond yield and a stronger dollar. If the greenback strengths, all types of commodity investing including oil may take a backseat.

Moreover, a feud is on in the Middle East between Qatar and Saudi-led other Arab states. These states accused Qatar of nursing terrorism. Now, some investors have started fearing that the OPEC argument may cause instability in the ongoing output cut deal (read: Will OPEC Feud Harm Oil ETFs?).

Are There Any ETF Ways to Profit from Oil Slump?

While the slump in oil prices is definitely hitting oil exporting nations and several oil companies, it is a blessing in disguise for several others. Lower oil prices normally help companies either by way of lower input costs or increased consumer spending or through both. Indeed, wilting oil prices can have a multiplier effect on the economy and benefit a range of sectors.

Below we have highlighted a few ETFs that should thrive on low oil prices.

Inverse Oil – ProShares UltraShort Bloomberg Crude Oil (SCOFree Report)

Given the situation, investors might want to consider shorting oil. Though futures or short-stock are some of the possible ways for doing so, there are a host of short oil ETF options which may make more sense for many investors. SCO, which offers twice the inverse performance of daily oil price, is one of the most popular options in the short oil ETF space having an asset base $171.4 million. SCO was up about 10.3% on June 7, 2017 (read: 4 Inverse ETFs to Short Oil as Crude Prices Tumble).

Oil Refiners – VanEck Vectors Oil Refiners ETF (CRAKFree Report)

Refining companies benefit from lower oil prices as crude is one of their main input costs. They take this crude and convert it into refined products. Though the refined product gasoline also showed an inventory built, “U.S. gasoline prices are forecast to be about 10% higher this summer than last”, as per EIA. This is beneficial scenario for refiners and makes CRAK an intriguing bet. CRAK was up over 0.2% on June 7.

Consumer – PowerShares Dynamic Leisure & Entertainment ETF (PEJFree Report)

Lower gasoline prices are good news for consumers as they will have fatter wallets and more money for discretionary spending.This is likely to lure customers to spend on leisure and entertainment. PEJ was up over 0.7% on June 7.

Transportation – SPDR S&P Transportation ETF (XTNFree Report)

Though retailers are definitely going to benefit from oil gasoline prices, the transportation sector is best positioned to take advantage of the falling crude. This is especially true as energy costs form a major portion of the overall costs of this sector and as such falling oil prices are likely to boost earnings of airlines and shipping companies. XTN was up over 1% on June 1. Notably, airline ETF US Global Jets ETF (JETSFree Report) added over 1.2% on the day.

India — PowerShares India ETF (PINFree Report)

With oil prices hovering around $46 (despite the extension of the OPEC output cut deal) on higher U.S. drilling, India has got a reason to cheer. The oil slide should bode well for India as the country is a huge importer of crude. PIN added about 0.3% on June 7 (read: 5 Reasons to Buy India ETFs Now).

The ProShares UltraShort Bloomberg Crude Oil ETF (NYSE:SCO) fell $0.29 (-0.65%) in premarket trading Friday. Year-to-date, SCO has gained 39.97%, versus a 9.06% rise in the benchmark S&P 500 index during the same period.

SCO currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #8 of 31 ETFs in the Inverse Commodities ETFs category.

This article is brought to you courtesy of Zacks Research.

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