VelocityShares 3x Inverse Crude (NYSEARCA: DWTI)
DWTI shares have reached momentary heavenly heights this year, conversely mirroring the dismal depreciation of oil prices. Will that trend continue? Opinions are divided. Numerous experts argue that high current oil inventories, coupled with expectations that Iranian oil exports will upsurge after the lifting of international sanctions, entail that the price of the barrel will remain low. The prediction that oil shall remain a bearish market bodes well for DWTI which is a 3x inverse exchange-traded note. Investors can anticipate many more gains should the gloomy premonitions for oil prove accurate.
The 3x Inverse Crude Oil ETN was issued by VelocityShares in 2012. ETF/ETN Analysis: VelocityShares 3x Inverse Crude Oil (DWTI,UWTI) It aims to recreate, by a multiple of three, the inverse of the returns from the S&P GSCI Crude Oil Excess Return Index. This -3x exposure reflects daily returns, not long-term results. The ETN flips then magnifies the movement of the price of crude oil. Since the latter is a volatile commodity at the outset, DWTI is a remarkably risky security. DWTI is designed for day-to-day trading and not long-term investing. This ETN is not recommended for those without high risk tolerance, nor for those seeking to invest in buy-and-hold strategies. It is also unsuitable as a core or satellite holding in any long-term portfolio. DWTI is only appropriate for knowledgeable day-traders and astute commodity speculators.
The ETN leapt upwards in mid-August in response to the S&P GSCI Crude Oil Excess Return Index plunging, only to barrel downwards as oil settled at slightly higher prices once again. During this timeframe, the security went from 231.90 to 95.60 in a mere few days. January and March saw similar, if not as dramatic, peaks and troughs. More recently with oil prices dwindling once again, DWTI has been making incremental gains.
To understand why DWTI has seen a spate of stellar highs this year and may continue to do so, you have to look at oil prices and to comprehend oil prices, you have to turn back to the financial crisis. In 2008, when black gold was true to its name and worth $150 a barrel, everyone was keen to rake in even more capital. As a result oil producers substantially increased their turnover, even inventing fracking to further production. Countries whose oil production had been limited now sought to capitalise on new found reserves. Saudi Arabia unsettled by many competitors strove to push them out by flooding the markets with cheap oil. This concatenation of events led to the current collapse. We have been over-inundated. Although a handful of analysts predict that oil prices will rise once again in 2016 due to continued demand and dwindling production, it seems more likely that for the crude oil price to settle, there will need to be a protracted period of underinvestment. We are presumably in that limbo period. For DWTI, oil’s undoing has resulted in profits for speculators, especially as the volatile market for crude continues to oscillate dramatically. DWTI may continue to benefit from low oil prices but should expect these to bounce back eventually. But it may be a long while until they do.
This rather exotic ETN is a highly sensitive security, as it inversely reflects the excess return version of the S&P GSCI Crude Oil Index three times over. This entails that its price directly correlates to oil prices and the effects of rolling future contracts. DWTI is best utilized as an ad hoc security for round-trip, transient trading by speculators who presume that the price of crude oil shall likely fall in the energy futures markets.