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 lost about 16.5% in the past month (as of Nov 8, 2018) while BNO United States Oil was down about 18.8%. Reuters technical commodity analyst Wang Tao said, " USO 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 Up 11.4% on Nov 8 DRIP -
Energy Bear 3X Direxion Up 6.45% on Nov 8 ERY -
United States 3X Short Oil Fund Up 5.11% on Nov 8 USOD -
Crude Daily -3X Inverse Proshares Up 5.08% on Nov 8 WTID -
Velocity 3X Inverse Crude Oil Up 4.85% on Nov 8 DWT -
Ultrashort Oil & Gas Proshares up 4.64% on Nov 8 DUG -
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.
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DIRX-D SP OG BR (DRIP): ETF Research Reports DIR-EGY BEAR 3X (ERY): ETF Research Reports US-OIL FUND LP (USO): ETF Research Reports US BRENT OIL FD (BNO): ETF Research Reports PRO-ULS OIL&GAS (DUG): ETF Research Reports USCF-3X SH OIL (USOD): ETF Research Reports VS-3X IN CR OIL (DWT): ETF Research Reports E-TRC PRS 3XIC (WTID): ETF Research Reports To read this article on Zacks.com click here. Zacks Investment Research Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report