VelocityShares 3X Long Crude ETN linked to the S&P GSCI has suffered much this year in response to the weakness in crude oil prices. Crude oil started crashing from more than $100 per barrel two years ago and it dropped below $30 per barrel in January. Many investors in commodities had thought that crude oil has seen the worst in the first quarter of the year and the hopes of bullish rally was kindled after oil prices touched a year-high of $52 per barrel in June.
However, the June rally has turned out to be a fluke and the oil prices have fallen about 20% below that June high. Now, latest news in the energy industry indicates that crude oil might be on the verge of falling into another bear market.
Crude oil tanks for the fifth straight session
The Wall Street Journal reports that U.S. crude declined for the fifth straight session to end Wednesday’s session with a loss of 2.3% at $41.92 per barrel. The global benchmark of Brent had wider losses as it ended the session with a 3.17% decline to close at $43.47 per barrel. As expected, the VelocityShares 3X Long Crude ETN linked to the S&P GSCI tracked the weakness in oil to end Wednesday’s session with losses. The ETF was down 5.74% to end the session at $19.39.
The weakness recorded in oil prices yesterday was caused by the renewal of the bearish thesis after the U.S. Energy Information Administration released data on oil inventory. The EIA reported that crude oil stocks increased by almost 1.7 million barrels last week in sharp contrast to the analysts’ expectation that oil stocks will fall by 1.6 million barrels. More so, the EIA noted that gasoline stocks increased by 452,000 barrels whereas analysts had expected gasoline stocks to remain unchanged.
The fear of an oversupply in oil is causing commodities investors to steer clear of oil because a supply glut often leads to lower prices. Last week, it was reported that oil inventory was high in sharp contrast to expectations that inventories should drop as the summer draws towards an end and refiners start their maintenance season. The weakness in oil could also cause the VelocityShares 3X Long Crude ETN linked to the S&P GSCI to fall lower in the coming months.
Crude oil decline might extend into the second half of the year
Oil has traded between $45 and $50 per barrel in the last two months and analysts had expected oil to maintain a range around the $42 range. However, it is unlikely that crude oil or VelocityShares 3X Long Crude ETN linked to the S&P GSCI will reward investors going forward.
In a report released on Tuesday, analysts at Morgan Stanley observed that oil could fall lower into the mid-$30s once again. In the words of the analysts, “we see worrisome trends for supply, demand, refined products, the macro and positioning that may all coalesce in late summer.”
Robert Yawger, director of the futures division at Mizuho Securities observes that “The storage situation is on steroids here” and Robbie Fraser, commodity analyst at Schneider Electr4ic notes that “If we look at the big picture, it doesn’t look like a rebound.”