Monetary Tightening Concerns Drive Inverse Crude ETFs Higher

Crude oil prices dropped on Tuesday. This pulled crude ETFs lower amid growing concerns that ongoing hawkish monetary tightening will affect global economic activity as the year progresses. In turn, this could spell trouble for crude demand but also benefit inverse crude ETFs.

As of nearly 130PM EST, West Texas Intermediate (WTI) futures were down by 1.73% to hit $68.18 a barrel after recovering a bit from their wort levels. Meanwhile, international bellwether Brent crude slipped over 2% to $72.66 a barrel.

Oil had started the day higher on Tuesday. This follows the news that Chinese Premier Li Qiang was set to allow additional stimulus to buoy China, the world’s largest crude importer, and help it achieve its annual economic growth target of roughly 5%.

China grew 4.5% year-on-year in the first quarter of 2023, but momentum has waned significantly since then, prompting key banks to downgrade their growth projections.

“Up until now, oil demand indicators for China have been good, with stronger crude oil imports and higher apparent domestic demand,” said analysts at ING, in a note. “The concern is whether this can continue as there are clearly still some weak spots within the Chinese economy – specifically with industrial production and the property sector.”

European Central Bank President Christine Lagarde, who met with other global central bankers in Portugal, said that eurozone inflation could lead to a prolonged period of restrictive monetary policies, affecting global demand.

Russia's Crude Status

Meanwhile, Russian crude oil exports by sea tumbled by as much as 980,000 barrels per day (bpd) in the week ending June 25. However, the fall was probably the result of necessary maintenance to a key export terminal rather than the agreed-upon limit to Russia’s crude oil production.

Crude oil shipments dropped by around 263,000 bpd on a monthly average basis leading up to June 25, and last week’s plunge compared to previous weeks is probably ephemeral, according to the data analyzed by Bloomberg’s Julian Lee.

Russia has stopped reporting oil production levels, and the market and analysts must rely on vessel-tracking data, trade sources, and import statistics in China and India about the amount of Russian supply.

Falling inflation and rising demand could benefit rude ETFs like the United States Oil Fund (USO)which is 1.75% lower today amid the decline in oil futures, as well as the ProShares Ultra Bloomberg Crude Oil (UCO).

Meanwhile, short ETFs like the ProShares UltraShort Bloomberg Crude Oil (SCO), which is up over 3% Tuesday, could benefit from continuing inflation and lower oil demand.

SCO is for savvy traders and investors and offers 2x daily short leverage to the broad-based Dow Jones-UBS Crude Oil Sub-Index, making it a powerful tool for individuals with a bearish short-term outlook for crude oil. Investors should note that SCO’s leverage resets daily, resulting in compounding returns when held for multiple periods. SCO can be a powerful tool for sophisticated investors but should be avoided by those with a low-risk tolerance or a buy-and-hold strategy.

For more news, information, and analysis, visit the Commodities Channel.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


More Related Articles

Info icon

This data feed is not available at this time.

Sign up for the TradeTalks newsletter to receive your weekly dose of trading news, trends and education. Delivered Wednesdays.