The Oil Market and Oil ETFs Analyst Review

Crude oil ETNs 3x UWTI VelocityShares 3x Long Crude Oil ETN and -3x DWTI VelocityShares 3x Inverse Crude Oil ETN


Traders News Source 10-10-16 Ramakrishnan Iyer


West Texas Intermediate crude broke the barrier of $ 50 per barrel for the first time since June 24 and this increase comes on top of a number of pieces of good news, which may help in rebalancing the dynamics of supply and demand. Last week, the OPEC preliminary agreed to a cap on the production of oil and subsequently, the Energy Information Association announced that reserves of oil in the US had decreased by 3 million barrels, which was against all expectations. Over the past one and a half years, there has been an oversupply of oil, causing prices to catch the lowest level in over a decade and the latest news suggests that some of the oversupply may finally be being processed by the system.


Bloomberg reports that pessimists about oil continue to be pessimistic, even after the market rallied on the back of the output deal from OPEC. 56% of the analysts, traders and brokers surveyed were bullish which was up from 50% in the previous week. Futures in New York have risen by more than $5 a barrel since OPEC agreed last week to cut production and have risen over $50 for the first time in three months. OPEC has produced a record output in September and is scheduled to decide on the quotas of members at a meeting in Vienna on November 30th. Prices have also risen as US crude supplies declined by 26.1 million barrels to 499.7 million in the past five weeks. People are still sceptical about the OPEC agreement, say experts, because there is not much trust in the market about enforcement because of the patchy compliance record in the past. Saudi Arabia spearheaded the move by OPEC to adopt a policy of pump output in November 2014, but members routinely overshot their quotas, leading to a rise in global inventory is because of the resulting drop in prices.


However, the rally started to run out of steam on Friday, with prices dropping back below $50. US oil for November delivery dropped by $ .63, or 1.25% to $ 49.81 per barrel on the New York mercantile exchange and Brent was off by $ .58, or 1.1% at $ 51.93 on the ICE Futures Europe. Oil had earlier continued to rise after OPEC decided last week to cut production between 200,000 and 700,000 barrels per day to moderate the global oversupply, which has resulted in weakness in prices for more than two years. The unexpected reduction in US crude inventory for the fifth consecutive week also helped in boosting prices. Crude still ended the week with a third consecutive week of increases, but some participants in the market feel that oil prices have peaked for the moment. Participants feel that it is not going to be easy for the market to sustain the upward movement in price because of the fundamentals and some of the scepticism concerning OPEC and that the latest trading has reversed some of the strong gains for the week. Other experts say that another catalyst is required to drive prices higher because of the lack of follow-through on the upside. There was a brief rally in oil prices following the Data from the US Department of Labor that the economy added 156,000 jobs in September, which is well below the expectation of 170,000. In recent times, the price of oil has), followed the movements in the US dollar because of weaker dollar results in cheaper oil for buyers, but this trend has changed and optimism that the OPEC agreement has resulted from a fundamental change in the policy of Saudi Arabia to opt for market share, rather than price.


Forecasting oil prices in 2016


This has proved difficult because of the way market prices have fluctuated in 2016, with a number of investment banks such as Barclays producing forecasts which have been well wide off the mark and others often well off the target. The factors in predictions into a more normal winter this year compared to the mild winter last year, as well as political problems in Nigeria and Venezuela, which may have the effect of reducing OPEC production even before the deal was struck to cut production. Moreover, the cutback in production has to result in a sustained reduction in global inventory. Another important factor is that the economics of light oil production in the US is stronger than what is currently being forecast, prices will be checked lower, whereas weaker production would contribute to higher prices.



Crude oil ETNs 3x UWTI VelocityShares 3x Long Crude Oil ETN and -3x DWTI VelocityShares 3x Inverse Crude Oil ETN


VelocityShares® energy exchange traded products include leveraged long and inverse positions in futures on West Texas Intermediate crude oil using the benchmark of the S&P GSCI indices. It is true that institutional investors have a range of instruments (such as futures, swaps, and forwards) to use in energy investments, but these exchange traded products provide a convenient alternative with their own capabilities. They provide institutional investors with exchange traded instrument for managing risk or implementing short-term market views.  The long products are designed to increase in value with the daily-resetting of 3x multiple of any increase in the underlying index, while the inverse products are designed to increase in value by a daily-resetting of 3x multiple of any decrease in value.


(UWTI) VelocityShares 3x Long Crude Oil ETN product data is closing indicative value of $ 26.93 with 51,032,583 ETNs outstanding and a market capitalisation of $ 1,374,307,460. The index weight is 20% NYM Crude Oil Futures November 2016 and 80% NYM Crude Oil Futures December 2016.


(DWTI) VelocityShares 3x Inverse Crude Oil ETN product data is closing indicative value of $ 59.65 with ETNs outstanding of 8,515,404 with a market capitalisation of $ 507,943,849. The index weight is 20% NYM Crude Oil Futures November 2016 and 80% NYM Crude Oil Futures December 2016.





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