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OPEC Spat & Trade Tension Drag Down Oil: ETFs to Profit

Sanghamitra Saha
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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 and Brent fund United States Brent Oil BNO 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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US-OIL FUND LP (USO): ETF Research Reports
 
US BRENT OIL FD (BNO): ETF Research Reports
 
PRO-ULS BB CRUD (SCO): ETF Research Reports
 
DIR-EGY BEAR 3X (ERY): ETF Research Reports
 
PRO-SH OIL&GAS (DDG): ETF Research Reports
 
US-SHRT OIL FD (DNO): ETF Research Reports
 
PRO-ULS OIL&GAS (DUG): ETF Research Reports
 
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Zacks Investment Research
 
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