The reason why crude oil is down is multifactorial.
Not only is it geopolitical between the Saudi's and Russia (Saudi's lowering their price per barrel of oil by $6 as a threat to Putin to slow down production) , but you also have the severe oversupply against a catastrophic collapse in demand due to continued U.S. production of WTI in an environment where the majority of the United States is on travel restrictions.
It is the absolute perfect storm for the destruction of the crude oil commodity itself. Global Supply is at maximum and United States capacity for storing crude oil is at 90%. I believe the United States produces 12.5 million barrels per day and that oil has to be stored somewhere so it's literally sitting offshore on huge tankers and there are storage fees incurred and this causes contango.
Obviously crude oil at $25 or less per barrel is non-profitable for refiners. I anticipate many bankruptcies on US refiners in 2020 and that is the reason why I am not long any of the independent drillers or refiners.
But crude oil itself, will most likely retest the $20 low and UCO/USO will feel some pain before ultimate pleasure. In my opinion, it's going to take at least 6 months for WTI Crude to be profitable again (over $25/barrell). And again, it's not really a matter of if, but a matter of when.
This pandemic has already taken its toll on the underlying commodity and there are a couple of analysts out there that suggest $15 crude oil. That would equate to $1 a gallon gasoline. Me personally? I don't mind taking paper losses until we get down to those levels because that's when I will double down on UCO as well as taking a large position in The United States Gas Fund (UGA).
We all know that crude oil prices cannot remain this low for any extended period of time , nor can gasoline.
Once this Covid-19 "pandemic" runs its course and people slowly turn the key in their cars into the on position and step on the gas - crude will have multi dollar/high percentage intraday gains for weeks.
I can see Brent back into the $50 range and WTI back to the $40s by July/August providing we're all still alive.
You'll have to do the math at where UCO will be by then but it provides a rate of 2x the percentage gain of WTI so... we should be sitting pretty.
Of course there's going to be the issues of contango along the way and consolidation of United States Drillers and refiners as the majority of the small ones file bankruptcy. I do not believe they are going to be getting bailed out by the US government -but who knows.
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