As International Oil Prices Drop 30%, Crude Oil ETF Returns Also Plummet

Crude Oil ETF 3-Month Return -23.19%
International Oil Price Down -29.7% from June Peak

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] As international oil prices have fallen by 30% from their peak in June, the returns on crude oil exchange-traded funds (ETFs) are also faltering.

According to the Korea Exchange on the 20th, over the past three months (June 19 to September 19), the returns of KODEX WTI Crude Oil Futures (H) and TIGER Crude Oil Futures Enhanced (H) recorded -23.19% and -22.44%, respectively. Even KBSTAR US S&P Oil Production Companies (Synthetic H), which had posted double-digit returns for a while, recorded a -2.00% return.

The ultimate reason for the significant losses in crude oil ETF returns is the high-intensity tightening. As the United States sharply raised interest rates to curb inflation, concerns about an economic recession have increased. Consequently, with expectations that crude oil demand will also slow down, international oil prices have recently declined.

In fact, the International Energy Agency (IEA) presented a daily crude oil demand increase of 2 million barrels for this year in a report released on the 14th. This is 100,000 barrels less than the previous forecast.

The price of West Texas Intermediate (WTI) crude oil futures, which crude oil ETFs track, reached a high of $122.11 per barrel on June 8, marking a peak since March. However, it has dropped to $85.73 as of the previous day. This is a 29.7% decrease from the June peak.

As it becomes difficult to predict the direction of international oil prices, the market is also taking a neutral stance. Crude oil ETF investments are expected to carry significant risks for the time being.

Shim Soo-bin, a researcher at Kiwoom Securities, said, "Uncertainties related to US monetary policy remain, and the strength of the dollar is likely to intermittently exert downward pressure on oil prices," but added, "Since it is difficult to expect significant changes in the tight crude oil supply and demand conditions, it will be hard for oil prices to fall to the levels seen at the beginning of the year within this year."