VelocityShares 3x Long Crude Oil ETNs linked to the S&P GSCI Crude Oil Index ER (NYSEARCA:UWT) fell harshly on Tuesday as traders bet against the ability of OPEC to keep its members in line.
At time of writing the leveraged ETF had lost more than 8 percent of its value. That’s just for Tuesday morning. It has lost more than 60 percent in the last six months on oil woes.
The reason for the fall in the crude oil price on Tuesday appears to be a loss of confidence in OPEC. The oil price rose last year after the cartel made a deal to restrict output. As of Tuesday, however, all of those gains had been erased.
While most of OPEC appears to be sticking to the deal to cut production, two countries are adding pressure. Libya and Nigeria are, by agreement in OPEC, exempted from the cuts. They’ve responded by increasing production pushing prices lower.
The OPEC deal was well received because it was broadly accepted. The cuts involved weren’t all that deep, however. That means that the members will rely on demand increases to drive prices higher. So far that has simply not occurred.
Saudi Arabia, arguably the world’s most important oil pumper, reckons the new lows are being set by old stockpiles. It seems hard to convince Wall Street of that, however.
The moves among OPEC members are causing even more worry for already burdened traders of the VelocityShares 3x Long Crude Oil ETNs linked to the S&P GSCI Crude Oil Index ER (NYSEARCA:UWT).
Now is not the time for the inexperienced to buy into the VelocityShares 3x Long Crude Oil ETNs linked to the S&P GSCI Crude Oil Index ER (NYSEARCA:UWT). The leveraged ETN is dangerous at the best of times. Right now it’s downright fatal for the novice.
The price of oil is in a very volatile period, and VelocityShares 3x Long Crude Oil ETNs linked to the S&P GSCI Crude Oil Index ER (NYSEARCA:UWT) multiplies that volume.
The OPEC deal will continue to be a point of contention in the coming months. On top of that is the rise in crude production back in the United States. Falling crude oil prices have resulted in higher production in North America this year.
That means that either costs of production are falling, or producers are betting on future rises. If it’s the latter Saudi Arabia, and other oil-supported states, should be nervous. If it’s the latter then those producers are likely to end up out of business.
For traders of the VelocityShares 3x Long Crude Oil ETNs linked to the S&P GSCI Crude Oil Index ER (NYSEARCA:UWT) it’s almost impossible to know which effect dominates. That makes it one of the most dangerous bets on Wall Street.