Oil prices are once again caught in a political spat among OPEC allies and escalating trade war tensions between the United States and China. 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.
Short Oil
ProShares UltraShort Bloomberg Crude Oil (SCO) – Up 6.90% on Jun 15
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).
United States Short Oil Fund (DNO) – Up 2.5% on Jun 15
The fund seeks to match the inverse performance of the spot price of light sweet crude oil.
Short Energy Stocks
ProShares Short Oil & Gas ETF (DDG) – Up 1.6% on Jun 15
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.
ProShares UltraShort Oil & Gas ETF (DUG) – Up 4.4% on Jun 15
This fund seeks two times (2x) leveraged inverse exposure to the daily performance of the Dow Jones U.S. Oil & Gas Index.
Direxion Daily Energy Bear 3x Shares ETF (ERY) – Up 6.5% on Jun 15
This product provides three times (3x) inverse exposure to the Energy Select Sector Index.
Bottom Line
As a caveat, investors should note that such products are suitable only for short-term traders. Still, for ETF investors who are bearish on the oil patch for now, a near-term short could be intriguing for those with a high-risk tolerance.
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Oil prices are once again caught in a political spat among OPEC allies and escalating trade war tensions between the United States and China. 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.
Short Oil
ProShares UltraShort Bloomberg Crude Oil (SCO) – Up 6.90% on Jun 15
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).
United States Short Oil Fund (DNO) – Up 2.5% on Jun 15
The fund seeks to match the inverse performance of the spot price of light sweet crude oil.
Short Energy Stocks
ProShares Short Oil & Gas ETF (DDG) – Up 1.6% on Jun 15
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.
ProShares UltraShort Oil & Gas ETF (DUG) – Up 4.4% on Jun 15
This fund seeks two times (2x) leveraged inverse exposure to the daily performance of the Dow Jones U.S. Oil & Gas Index.
Direxion Daily Energy Bear 3x Shares ETF (ERY) – Up 6.5% on Jun 15
This product provides three times (3x) inverse exposure to the Energy Select Sector Index.
Bottom Line
As a caveat, investors should note that such products are suitable only for short-term traders. Still, for ETF investors who are bearish on the oil patch for now, a near-term short could be intriguing for those with a high-risk tolerance.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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