Soaring International Oil Prices... 'Reverse Investment' ETF Retail Investor Losses Snowball

"International Oil Prices Expected to Continue Rising Through the Second Half of This Year"
Warning Signals for Inverse Low-Price Buying

[Image source=Yonhap News]

[Asia Economy Reporter Ji Yeon-jin] "How long will high oil prices continue?" Wang Gaemi (pseudonym, 42), an office worker, switched to exchange-traded funds (ETFs) last year after growing tired of the stagnant domestic stock market, but is now struggling. Earlier this year, international oil prices, which had been soaring, faltered in March, prompting Wang to buy 'Inverse ETFs' betting on a drop in oil prices, resulting in significant recent losses. Wang has been selling stocks purchased last year whenever losses recover in anticipation of U.S. tightening. However, he said, "Since international oil prices will eventually fall, I am considering whether to buy more Inverse ETFs."

As international oil prices surged, ETFs betting on rising oil prices also saw their returns soar. However, individual investors heavily invested in ETFs betting on falling oil prices, suffering double-digit losses.

According to the Korea Exchange on the 7th, among domestic listed ETFs in the past month (May 3 to June 3), the highest return was recorded by 'KBSTAR U.S. S&P Oil Production Companies (Synthetic H)' at 19.43%. Additionally, among the top 10 ETFs by returns were four that bet on rising oil prices, including 'KODEX U.S. S&P Energy (Synthetic)' and 'KODEX WTI Oil Futures (H)' and 'TIGER Oil Futures Enhanced (H)'.

On the other hand, 'TIGER Oil Futures Inverse (H)' posted a return of -13.21%, the second lowest after 'KINDEX Vietnam VN30 Futures Bloomberg Leverage (H)' at -15.64%. 'KODEX WTI Oil Futures Inverse (H)' fell 13.16% over the month, ranking third lowest.

However, in the past month, the highest trading volume among oil ETFs was 'KODEX WTI Oil Futures Inverse (H)' with 440 billion KRW, followed by 'TIGER Oil Futures Inverse (H)' with 246 billion KRW. The trading volume of the top-performing 'KBSTAR U.S. S&P Oil Production Companies (Synthetic H)' was only 13.9 billion KRW.

International oil prices slightly declined after surpassing $120 per barrel in March following Russia's invasion of Ukraine but remain above $100, sustaining the high oil price situation. On the 6th (local time), West Texas Intermediate (WTI) crude oil prices at the New York Mercantile Exchange reversed a three-day rise, closing at $118.50. However, Dubai crude rose 3.16% from the previous trading day to $115.66, marking the highest level since March 23.

The market advises caution in buying at low prices as international oil prices may rise further. Shim Soo-bin, a researcher at Kiwoom Securities, said, "If oil demand forecasts are lowered again, it may partially ease upward pressure on prices, but considering China's easing of lockdowns, significant changes in demand forecasts are unlikely. International oil prices may rise until the third quarter and could reach as high as $140."