The VelocityShares 3X Long Crude ETN linked to the S&P GSCI Crude Oil Index Excess is an ETF that’s designed to be volatile. It’s a leveraged ETF that’s supposed to trade at 3 times the price of oil, but it launched at exactly the wrong time for oil bulls.
The ETF is now down by more than 95 percent since it began to trade at the start of 2012. A huge loss in value was witnessed in recent days as the US and other world powers, inched closer to a deal with Iran. After those talks finished this morning the VelocityShares 3X Long Crude ETN linked to the S&P GSCI Crude Oil Index Excess appears set to sink to new lows.
Iranian oil begins to flow
Iran’s deal with the rest of the world promises to bring an end on sanctions imposed by the US and EU in exchange for curbs on Iran’s nuclear program. For the oil market that means an instant increase in the supply of the liquid to the world market, and an increase in investment in the region for some years to come.
Though Israel called the deal an “historic surrender,” Western powers and Iran have welcomed it as a step forward for peace in the Middle East. President Obama said, in a speech on the deal made this morning, that it was a solid step toward a “more hopeful world.”
For those who were long oil, and in particular the VelocityShares 3X Long Crude ETN linked to the S&P GSCI Crude Oil Index Excess , it is the exact opposite. The price of both Brent and West Texas Intermediate oil fell on this morning’s market.
Trading the VelocityShares 3X Long Crude ETN
The VelocityShares 3X Long Crude ETN is a leveraged ETF. That means that its assets are paid for with some debt, and its gains and losses are multiplied by three times as a result.
That means that the ETN is much more volatile than the normal oil market, and losses over the past year in the general oil market, driven by an increase in production in the US, have been compounded into huge falls in the ETN.
Over the last year the ETV has lost more than 93 percent of its value. On this morning’s pre-market shares were trading down by more than 2%, bringing their price to $2.11. Shares began trading at over $50 when the ETF first appeared in 2012.
OPEC said in a recent meeting that it expects demand for oil to rise to meet supply over the next year. Those still trading the VelocityShares 3X Long Crude ETN will be hoping the cartel is right about that. Long a friend of higher oil prices, Saudi Arabia has kept its production high over the last year despite the drop in the price of each barrel.