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Oil price recently nosedived into a bear market with U.S. crude futures falling more than 20% below their April peak. The decline in price came amid worsening trade friction with China and Mexico that raised fears of global growth slowdown threatening demand (read: Oil Likely to See Steepest Weekly Fall: Inverse ETFs to Profit).
Additionally, crude inventories unexpectedly increased last week, fueling fears of a supply glut. The latest U.S. government data showed that crude inventories climbed to the highest level since July 2017 in the week ended May 31. Weekly oil production also increased to an all-time high of 12.4 million barrels per day. The dual headwinds of rise in inventories and trade war tensions resulted in a decline in oil price.
However, oil price rose 2% in today’s session on reports that the United States is considering a delay in tariffs on Mexico as talks continue and signs that OPEC and other producers may extend crude supply cuts.
Supply/Demand Trends
Currently, the ongoing trade worries coupled with bouts of weak data across the globe and an inverted yield curve, which suggests imminent recession, make the oil outlook gloomy. This is because factory activity contracted in the United States, Europe and Asia last month due to a deepening trade dispute between Washington and Beijing, which will weigh on the demand. The International Energy Agency (IEA) reduced oil demand forecast by 90,000 barrels per day to 1.3 million barrels per day for this year.
However, supply conditions are still tight, given declines in Venezuela, Iran, potentially Libya and temporary outages in Russia. Additionally, the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers including Russia have been withholding oil supply since the start of the year to tackle global supply glut and rebalance the oil market. They are set to discuss whether to extend oil supply cuts beyond June later this month. All these bode well for oil price (read: What Went Wrong With Oil Services ETFs in May?).
Given the abrupt changes in oil price and an uncertain outlook, investors should place their bet on oil ETFs cautiously or could take advantage of the quick turn in sentiment with the help of leveraged or inverse ETFs.
Oil ETFs
These ETFs might be easier plays for investors seeking to deal directly in the futures market.
United States Oil Fund (USO - Free Report) : This is the most popular ETF in the oil space with an AUM of $1.3 billion and seeks to match the performance of the spot price of West Texas Intermediate (WTI or U.S. crude). The ETF has 0.73% in expense ratio.
United States Brent Oil Fund (BNO - Free Report) : This fund provides direct exposure to the spot price of Brent crude oil on a daily basis through future contracts. It has amassed $82.9 million in its asset base and charges 90 bps in annual fees and expenses.
Invesco DB Oil Fund (DBO - Free Report) : This product provides exposure to crude oil through WTI futures contracts and follows the DBIQ Optimum Yield Crude Oil Index Excess Return. The fund has AUM of $247.4 million and charges an expense ratio of 0.78%.
Leveraged Oil ETFs
Investors who are bullish on oil may consider a near-term long on the commodity with the following ETFs depending on their risk appetite.
ProShares Ultra Bloomberg Crude Oil ETF (UCO - Free Report) : This fund seeks to deliver twice (2x or 200%) the returns of the daily performance of the Bloomberg WTI Crude Oil Subindex, which consists of futures contracts on crude oil. It has $308.6 million in AUM and expense ratio of 0.95%.
VelocityShares 3x Long Crude Oil ETN : This seeks to deliver thrice (3x or 300%) the returns of the S&P GSCI Crude Oil Index Excess Return and has amassed $326.6 million in its asset base. The ETN charges a higher fee of 1.50% per year.
ProShares UltraPro 3x Crude Oil ETF (OILU - Free Report) : This ETF offers three times exposure to the daily performance of the Bloomberg WTI Crude Oil Subindex. The fund has amassed $75.7 million in its asset base and charges investors 95 bps in annual fees.
United States 3x Oil Fund : This fund also offers three times the daily price movements of WTI oil, charging investors 1.00% in expense ratio. It has accumulated $12.8 million in its asset base (read: How to Play Oil Rally With Leveraged ETFs).
Inverse Oil ETFs
Any negative news flow could provide investors’ a near-term short opportunity on the commodity according to their risk appetite.
ProShares UltraShort Bloomberg Crude Oil (SCO - Free Report) : This fund seeks to deliver twice the inverse daily performance of the Bloomberg WTI Crude Oil Subindex. It has attracted $74.2 million in its asset base and charges 95 bps in fees and expenses.
DB Crude Oil Double Short ETN (DTO - Free Report) : This ETN provides two times inverse exposure to the Deutsche Bank Liquid Commodity Index-Light Crude. It has amassed $16.9 million in its asset base and charges 75 bps in fees per year (see: all the Inverse Commodity ETFs here).
ProShares UltraPro 3x Short Crude Oil ETF (OILD - Free Report) : This fund seeks to deliver thrice the daily inverse performance of the Bloomberg WTI Crude Oil Subindex. It has attracted $21.6 million in its asset base and charges 95 bps in fees and expenses.
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How to Trade Oil Rush With These ETFs
Oil price recently nosedived into a bear market with U.S. crude futures falling more than 20% below their April peak. The decline in price came amid worsening trade friction with China and Mexico that raised fears of global growth slowdown threatening demand (read: Oil Likely to See Steepest Weekly Fall: Inverse ETFs to Profit).
Additionally, crude inventories unexpectedly increased last week, fueling fears of a supply glut. The latest U.S. government data showed that crude inventories climbed to the highest level since July 2017 in the week ended May 31. Weekly oil production also increased to an all-time high of 12.4 million barrels per day. The dual headwinds of rise in inventories and trade war tensions resulted in a decline in oil price.
However, oil price rose 2% in today’s session on reports that the United States is considering a delay in tariffs on Mexico as talks continue and signs that OPEC and other producers may extend crude supply cuts.
Supply/Demand Trends
Currently, the ongoing trade worries coupled with bouts of weak data across the globe and an inverted yield curve, which suggests imminent recession, make the oil outlook gloomy. This is because factory activity contracted in the United States, Europe and Asia last month due to a deepening trade dispute between Washington and Beijing, which will weigh on the demand. The International Energy Agency (IEA) reduced oil demand forecast by 90,000 barrels per day to 1.3 million barrels per day for this year.
However, supply conditions are still tight, given declines in Venezuela, Iran, potentially Libya and temporary outages in Russia. Additionally, the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers including Russia have been withholding oil supply since the start of the year to tackle global supply glut and rebalance the oil market. They are set to discuss whether to extend oil supply cuts beyond June later this month. All these bode well for oil price (read: What Went Wrong With Oil Services ETFs in May?).
Given the abrupt changes in oil price and an uncertain outlook, investors should place their bet on oil ETFs cautiously or could take advantage of the quick turn in sentiment with the help of leveraged or inverse ETFs.
Oil ETFs
These ETFs might be easier plays for investors seeking to deal directly in the futures market.
United States Oil Fund (USO - Free Report) : This is the most popular ETF in the oil space with an AUM of $1.3 billion and seeks to match the performance of the spot price of West Texas Intermediate (WTI or U.S. crude). The ETF has 0.73% in expense ratio.
United States Brent Oil Fund (BNO - Free Report) : This fund provides direct exposure to the spot price of Brent crude oil on a daily basis through future contracts. It has amassed $82.9 million in its asset base and charges 90 bps in annual fees and expenses.
Invesco DB Oil Fund (DBO - Free Report) : This product provides exposure to crude oil through WTI futures contracts and follows the DBIQ Optimum Yield Crude Oil Index Excess Return. The fund has AUM of $247.4 million and charges an expense ratio of 0.78%.
Leveraged Oil ETFs
Investors who are bullish on oil may consider a near-term long on the commodity with the following ETFs depending on their risk appetite.
ProShares Ultra Bloomberg Crude Oil ETF (UCO - Free Report) : This fund seeks to deliver twice (2x or 200%) the returns of the daily performance of the Bloomberg WTI Crude Oil Subindex, which consists of futures contracts on crude oil. It has $308.6 million in AUM and expense ratio of 0.95%.
VelocityShares 3x Long Crude Oil ETN : This seeks to deliver thrice (3x or 300%) the returns of the S&P GSCI Crude Oil Index Excess Return and has amassed $326.6 million in its asset base. The ETN charges a higher fee of 1.50% per year.
ProShares UltraPro 3x Crude Oil ETF (OILU - Free Report) : This ETF offers three times exposure to the daily performance of the Bloomberg WTI Crude Oil Subindex. The fund has amassed $75.7 million in its asset base and charges investors 95 bps in annual fees.
United States 3x Oil Fund : This fund also offers three times the daily price movements of WTI oil, charging investors 1.00% in expense ratio. It has accumulated $12.8 million in its asset base (read: How to Play Oil Rally With Leveraged ETFs).
Inverse Oil ETFs
Any negative news flow could provide investors’ a near-term short opportunity on the commodity according to their risk appetite.
ProShares UltraShort Bloomberg Crude Oil (SCO - Free Report) : This fund seeks to deliver twice the inverse daily performance of the Bloomberg WTI Crude Oil Subindex. It has attracted $74.2 million in its asset base and charges 95 bps in fees and expenses.
DB Crude Oil Double Short ETN (DTO - Free Report) : This ETN provides two times inverse exposure to the Deutsche Bank Liquid Commodity Index-Light Crude. It has amassed $16.9 million in its asset base and charges 75 bps in fees per year (see: all the Inverse Commodity ETFs here).
ProShares UltraPro 3x Short Crude Oil ETF (OILD - Free Report) : This fund seeks to deliver thrice the daily inverse performance of the Bloomberg WTI Crude Oil Subindex. It has attracted $21.6 million in its asset base and charges 95 bps in fees and expenses.
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 >>