[Asia Economy Reporter Eunmo Koo] Recently, as international oil prices have been falling day by day, the returns of exchange-traded products (ETPs) linked to oil prices are also sliding.
According to Bloomberg on the 10th, on the previous day (local time) at the New York Mercantile Exchange (NYMEX), October delivery West Texas Intermediate (WTI) crude oil closed at $38.05 per barrel, up 3.5% ($1.29). Although it partially recovered from the plunge the day before, international oil prices have been falling continuously this month, reaching their lowest level since mid-June. Oil prices, which closed August at $42.61 per barrel, dropped more than 7% on the 8th to $36.76.
As international oil prices plummeted, the returns of ETPs linked to oil futures also plunged. According to the Korea Exchange on the same day, KODEX WTI Oil Futures (H) closed at 5,765 KRW, down 5.95% (365 KRW) from the previous trading day. It has fallen for five consecutive trading days recently, dropping 14.8% this month. During the same period, TIGER Oil Futures Enhanced (H) also fell by 10.2%. The decline rates of exchange-traded notes (ETNs) were even greater. Daishin WTI Oil Futures ETN (H) fell 15.6%, and Shinhan WTI Oil Futures ETN (H) and Shinhan Brent Oil Futures ETN (H) dropped 15.2% and 14.5%, respectively. This contrasts with the KOSPI, which rose slightly by 2.1% during this period.
The cause of the oil price decline is attributed to the fact that oil demand has not significantly recovered due to the impact of the COVID-19 pandemic. Jin-ho Lee, a researcher at Mirae Asset Daewoo, explained, "As COVID-19 is spreading again mainly in Europe, uncertainty about oil demand is increasing, and it is also noteworthy that new confirmed cases continue to rise in India, the world's third-largest oil consumer." Additionally, the fact that China, the largest oil importer, has seen a decrease in oil imports for two consecutive months further raises uncertainty about demand recovery.
There is also analysis emphasizing the need to pay attention to conflicts within OPEC+, the alliance of OPEC and 10 non-member countries including Russia. Concerns about supply expansion due to conflicts within OPEC+ are causing oil prices to fall. Recently, Saudi Arabia's state-owned oil company Aramco lowered the official selling price of Arab Light crude oil for October delivery by $1.40. While this can be seen as a response to weak demand, it is more accurately interpreted as an indirect warning hinting at supply expansion. Jin-young Choi, a researcher at eBest Investment & Securities, said, "Saudi Arabia has long complained that the recovery of oil prices was due to their sacrifice," adding, "Recently, Iraq and Russia's intentions to reduce production cuts have been seen as a spark for conflicts."
Considering conflicts within OPEC+, the possibility of further adjustments in international oil prices should be kept open, but prices are expected to recover gradually. So-hyun Kim, a researcher at Daishin Securities, explained, "It is unlikely that a situation like last April, when international oil prices recorded negative values due to ongoing OPEC+ production cuts, will occur again, and if COVID-19 subsides, oil demand recovery will show an upward trend, albeit slowly."
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