Oil In Bear Market: Leveraged ETFs To Gain From

Pain in the oil patch is back again with the liquid commodity slipping into the bearish territory. Increasing supply and worries of an economic slowdown put a pressure on prices, with U.S. crude now down by around 20% since early October, indicating a bear market.

United States Brent Oil (AX:BNO) lost about 16.5% in the past month (as of Nov 8, 2018) while United States Oil (NYSE:USO) USO was down about 18.8%. Reuters technical commodity analyst Wang Tao said, "Brent oil may slide further,” as quoted on economictimes.

U.S. Sanctions on Iran Came in Softer Than Expected

Market watchers earlier expected that U.S. sanctions on Iran would push up oil price on supply disruptions. But in reality, the sanctions appeared way softer. Washington offered temporary waivers to eight key buyers, China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea, allowing them to continue to import oil from Iran (read: Iran Sanctions Unlikely to Boost Oil ETFs in 2019?).

Though the sanctions are likely to cut about 2% of global oil supplies, administration’s waivers hinted at a patient approach by Washington toward European and Asian customers so that they could find other suppliers.

OPEC & United States’ Production Rises

The second-largest OPEC producer Iraq intends to increase its oil output to 5 million barrels per day (bpd) (from 4.6 million currently) and export capacity in 2019, with a focus on its southern oilfields. There are high chances are that other key producers like Saudi Arabia and Russia will start pumping more.

On the other hand, U.S. shale production touched record highs, with the Energy Information Administration (EIA) announcing a weekly crude output of 11.6 million barrels per day, which marks a 22.2% jump this year. There was also a seventh-straight weekly rise in U.S. crude inventories, with stocks jumping by 5.8 million barrels last week against the forecast of a 2.4 million rise. The EIA sees output increasing to 12 million bpd by mid 2019.

Global Growth Worries?

The International Monetary Fund has guided slower global growth for 2018 and 2019, down 20 basis points for each year. Chinese growth plunged to the lowest levels in the last 10 years. Trade tension is yet another concern.

Against this backdrop, below we highlight a few inverse leveraged energy-related ETFs that gained considerably on Nov 8.

Direxion Daily S&P Oil & Gas Exploration & Production Bear 3X ETF (LON:DRIP) – Up 11.4% on Nov 8

Energy Bear 3X Direxion ERY – Up 6.45% on Nov 8

United States 3X Short Oil Fund USOD – Up 5.11% on Nov 8

Crude Daily -3X Inverse Proshares WTID – Up 5.08% on Nov 8

Velocity 3X Inverse Crude Oil DWT – Up 4.85% on Nov 8

Ultrashort Oil & Gas Proshares (V:DUG) – up 4.64% on Nov 8

Any Hopes of a Rebound Ahead?

Of late, China's crude imports hit a record high, lessening concerns about global growth to some extent. Some analysts believe that OPEC and Russia will again resort to output cuts if there is continued slump in oil price.

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 >>