The biggest piece of news on global markets yesterday was the price of West Texas Intermediate (WTI) crude oil falling into negative territory for the first time in history.
We learned it was entirely possible for a commodity to trade for a negative price. The reasons behind this are complex, but it basically involves a massive disparity between oil supply and demand as well as a lack of availability of global crude storage facilities.
But although WTI crude fell to as much as -US$40.32 a barrel in the last two days, prices today have returned to positive territory for WTI.
Nonetheless, opportunistic investors are clearly trying to capitalise on this unprecedented move.
Data from ASX brokerage sites, including Commonwealth Bank of Australia (ASX: CBA) platform CommSec, shows that the BetaShares Crude Oil Index ETF – Currency Hedged (ASX: OOO) is today one of the most heavily traded ASX stocks on the market.
How does the BetaShares Crude Oil Index ETF work?
The BetaShares Crude Oil Index ETF tracks an index that aims to “provide exposure to the price of West Texas Intermediate crude oil futures, hedged for currency exposure”.
It seems investors think there is an opportunity to ‘buy low’ here on a punt. OOO units have collapsed in value over the last two trading days. Last Friday, you could pick some up for $5.30. Today, OOO units are asking $2.82 at the time of writing – a 46.79% collapse.
If crude prices recover and the BetaShares Crude Oil Index ETF reverts back to Friday’s levels, investors would be looking at an 87.94% gain on today’s prices, so clearly the potential rewards of a swing trade here are too much for many investors to pass up.
But as with any investment (and especially one of such a short-term nature), there are risks. This ETF hasn’t exactly done well for its investors over time. Although it was incepted in November 2011, OOO units have lost their unitholders an average of 23.47% per annum since then. Over the past year, this loss climbed to 67.16%.
This can be partially explained by the oil price trending lower since 2011, but as this ETF is based on futures contracts, there is more to it than just the movements of the crude oil spot price. This fund’s management fee isn’t cheap either at 0.69% per annum.
Investors are seeing an opportunity with this play, and there’s no doubt there is some potential here. But potential is the key word here as it remains a high risk/high reward play in my opinion. Whether you’re up for that punt is up to you!