Traders have poured a record $977 million into the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), a leveraged bet that oil prices will collapse from their war-driven highs. Despite the high-volume, double-leveraged bet, the ETF still dropped 41% in March, its worst month in nearly six years, highlighting the ETF’s high risk in volatile markets. Oil prices have pulled back from recent highs after U.S. President Donald Trump announced that he is looking to wind up the Iran war soon.
The ProShares UltraShort Bloomberg Crude Oil ETF is a leveraged, inverse ETF designed to deliver twice the inverse of the daily performance of the Bloomberg Commodity Balanced WTI Crude Oil Index. It is used to profit from falling oil prices or hedge long positions.
However, its leveraged nature, coupled with the fact that the fund seeks daily, not long-term, inverse results, means that traders who hold longer than one day can still book huge losses despite a general downtrend in oil prices.
While some traders are gambling on a re-opening of the Strait of Hormuz and swift normalization of supply, the experts have warned that damaged infrastructure and logistics mean that oil prices are likely to remain elevated for long, creating a dangerous trap for the bears.
The Strait of Hormuz remains “practically closed,” with tanker traffic plunging by 95% from 130 crossings per day in February to just 6 in March. Major facilities, including Qatar’s Ras Laffan LNG complex and refineries in Kuwait and Saudi Arabia, have suffered direct hits, reducing output and requiring repairs that may take years.
The International Energy Agency (IEA) estimates that the blockade has cut off ~ 8 million barrels of crude per day from global markets which cannot be easily replaced. Many analysts now see $80–$85 per barrel as the “new normal” for Brent crude even if the conflict eases, thanks to embedded risk premiums and the need for massive inventory restocking.
By Alex Kimani for Oilprice.com
More Top Reads From Oilprice.com
- Chevron Reports “Extensive Damage” at Major LNG Project
- Iranian Drone Sets Kuwaiti Oil Tanker on Fire
- China Resells Record LNG Volumes as Global Gas Crunch Bites
