Here’s why the BetaShares Crude Oil Index ETF (ASX:OOO) is sliding 5% today

This oil ETF is plunging today.

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The S&P/ASX 200 Index (ASX: XJO) is having a pretty poor start to the trading week so far this Monday. At the time of writing, the ASX 200 is down by 0.14% at 7,269.4 points after sliding as low as 7,180 points this morning. But one ASX exchange-traded fund (ETF) is making that loss look paltry. That would be the BetaShares Crude Oil Index ETF (ASX: OOO).

OOO units are today down a nasty 5.64% to $5.86 each after closing at $6.25 a unit last Friday. So why such a steep loss for this ASX ETF? Well, to answer that, we first have to examine what kind of investments make up this particular ETF. Like all ETFs, OOO holds underlying securities that make up its fund. But unlike most ETFs, OOO doesn’t actually hold shares.

Instead, this ETF holds futures contracts that are tied to the raw price of crude oil. In this way, it is designed to give investors exposure to the movements in the oil price, hedged to Australian dollars. It holds no shares in any other investment, including those of actual oil companies.

This fund has given investors quite the rise in recent times. As of 31 October, OOO units were up an impressive 131.9% over the past 12 months, including distribution returns. However, OOO has also given investors a negative return of 21.92% per annum on average over the past 3 years up to that date.

So, what’s happened to the BetaShares Crude Oil Index ETF today?

BetaShares Crude Oil Index ETF slips in spilled oil

Well, it’s hard to know with absolute certainty. But it is possible that today’s steep falls are the result of what has happened to the global energy market in the last few days. As my Fool colleague James reported this morning, the global oil market suffered a nasty sell-off on Friday night (our time). As we reported, Friday saw WTI crude oil fall 13.05% to US$68.15 a barrel. And the Brent crude oil price dropped 11.55% to US$72.72 a barrel.

These steep drops are likely a result of the emergence of the Omicron variant, which has spooked investors around the world. Once again, the prospect of more COVID lockdowns, restrictions and shutdowns are looming, it seems.

Since OOO invests in oil futures contracts, the value of said contracts has likely plummeted with these sharp drops in oil pricing. This is the most likely reason why OOO units have dropped more than 5% so far this Monday.

The BetaShares Crude Oil Index ETF charges a management fee of 0.69% per annum.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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