The price of Brent oil fell to less than $50 per barrel on Monday evening for the first time in six months. The move is being seen as confirmation that an era of moderate oil prices is taking over as world supply outstrips demand. Those with shares in some ETFs tracking the black liquid won’t be happy to hear it.
The VelocityShares 3X Long Crude ETN linked to the S&P GSCI Crude Oil Index Excess Return has lost more than 95 percent of its value over the last year. The ETF is leveraged and multiplies the gains or losses in the oil market by three times. It’s been all losses for the last twelve months, and traders have felt it.
Oil prices head lower
On Monday the price of a barrel of Brent hit below $50 for the first time in six months. Back in January the benchmark tested $45. David Hufton of PVM told the Wall Street Journal that “The prospects of a second half-year price rebound have evaporated and there is a clear and present danger of prices revisiting the previous lows of the year.”
Barclays says that there is little sign of a slow down in the production of oil by its metrics. Its index of oil-pumpers covers about 40 percent of the world supply. With the market moving in the wrong direction for those long the VelocityShares 3X Long Crude ETN linked to the S&P GSCI Crude Oil Index Excess Return , it’s clear that there could be further pain ahead.
VelocityShares 3X Long Crude ETN pain mounts
VelocityShares 3X Long Crude ETN linked to the S&P GSCI Crude Oil Index Excess Return is a popular instrument for betting on movement in the oil market, but those who were looking for gains have been badly wounded by the price movements in recent months.
After the awesome fall in the price of oil at the end of 2014 and the beginning of 2015, many traders thought that closing rigs in the US and unrest in the Middle East, couple with higher demand from economic recovery in the US, would boost the price.
That held true for a short period before expectations of supply from Iran, and a fall in activity in China this Summer brought about a run in the opposite direction. The price of a barrel of Brent tested a low of $45 the last time oil prices were compressed by the market outlook. It’s not clear if they’re heading toward that level again.
Bank of America analyst Sabine Schels says “The market is very skeptical of shale production declines.” The price of oil is likely to fall further, says Schels, because pumpers don’t seem to be cutting down on their output.
BMI research says “A retest of Brent crude’s 2015 low around $45 per barrel looks inevitable given current ample market supply and intensifying bearish market sentiment toward prices.” That’s bad news for any thinking about going long on the VelocityShares 3X Long Crude ETN linked to the S&P GSCI Crude Oil Index Excess Return .