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Crude oil prices are dipping lower today amidst news that top oil producers have failed to agree on limiting global output levels.  Negotiations broke down over the weekend because Saudi Arabia insists on having Iran participate in the production freeze. 

Iran has been freed from international sanctions for just a few months now, and many expect to see the country increase its output beyond current levels.  This consensus prevails because the country has only begun to enjoy the benefits that come with being a global oil exporter.

The end result of the freeze talks was not surprising at all.  Many investors were speculative of the possibility that an agreement could be reached across large oil producing nations.  As oil production continues to exceed global demand for the commodity, the world can expect to see lower oil prices for a while longer.

Because of the current supply vs. demand disparity, there’s a strong chance that we will see oil prices trend even lower over the short term.  These inverse oil ETFs are some great options for profiting significantly from this phenomenon.    

VelocityShares 3x Inverse Crude ETN-(DWTI - ETF report)

This ETN is composed of WTI oil futures contracts, and it rebalances on a daily basis.  The product is based off of the S&P GSCI Crude Oil Index, and it seeks to replicate three times the opposite result of the index.  This means that if the S&O GSCI Crude Oil Index goes down 5%, you should expect to make close to 15% in profit with VelocityShares 3x Inverse Crude ETN.

DWTI has been hot over the last few days.  If you bought in on this ETN last Wednesday, you would be up about 17.83% since you made the investment.  In that same time frame, the S&P 500 has gained 1.11%.  DWTI costs 1.35% to invest in per year.

ProShares UltraShort Bloomberg Crude Oil-(SCO - ETF report)

SCO seeks to give investors two times the inverse return on the Bloomberg WTI Crude Oil Subindex.  This short ETF rebalances on a daily basis, and it has net assets of $210.22 million.  Investing in the product costs 0.95% per year.

Since the 13th of April, SCO has picked up about 9.25%.  Over the last three months, the daily average volume for the fund was 667,011 shares.  Today’s volume has exceeded one million shares.

DB Crude Oil Short ETN-(SZO - ETF report)

This ETN is benchmarked off of the Deutsche Bank Liquid Commodity index - Optimum Yield Oil Excess Return.  It seeks to give shareholders a 1x inverse return of light sweet crude oil (WTI).  Of the three products listed in this article, this one is probably the least risky.  If you don’t want to risk being too aggressive with a leveraged fund, then SZO might be right for you.

SZO is not very popular at all, and its volume is just 2,668 so far today.  This is lower than the average volume over the last three months.  The annual cost to invest in this ETN is 0.75%.

Bottom Line

Pick your poison.  Regardless of which one of these products you choose, the underlying short position on WTI crude remains the same.  It all comes down to how confident you are in the bear argument for oil over the short term. 

If you’re following the commodity closely and you see no plausible argument for oil going higher than current prices, then DWTI is probably right for you.  If you are bearish but have a low tolerance for volatility, then SZO should be a better fit for you.

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