Inverse oil exchange-traded funds (ETFs), which are leveraged and can be highly risky, seek to short either a single energy commodity or a combination of several energy commodities, including crude oil, gasoline and heating oil. These ETFs gain when prices of the underlying oil-based commodities fall, which can occur due to a drop in global demand or a rise in global supply. The threat of the spreading coronavirus and its impact on economic activity is currently depressing global demand for oil, and threatens to push down prices further. At the same time, prices also are under pressure as Saudi Arabia plans to ramp up oil production in order to regain market share from higher-cost producers, which would boost global supply.

The inverse oil ETF universe is comprised of about 6 funds. These are highly leveraged, as generally indicated by the "2X", "UltraShort", "3X", or "Double" label within the fund's name. Leveraged ETFs use financial derivatives and debt to amplify returns and, thus, are considered especially risky. These vehicles are used mainly by highly sophisticated investors who have experience with volatility in energy commodities and also with leveraged ETF price swings.

These ETFs hold commodities as opposed to energy equities, which tend to be less volatile. Investopedia normally does not cover such leveraged funds due to their high-risk characteristics, but there are no non-leveraged inverse oil ETFs.

The best-performing inverse oil ETF for 2020, based on performance over the past year, is the DB Crude Oil Double Short ETN (DTO). We examine the top 3 best-performing inverse oil ETFs below. All numbers in this story are as of March 12, 2020.

DB Crude Oil Double Short ETN (DTO)

  • Performance over 1-Year: 39.4%
  • Expense Ratio: 0.75%
  • Annual Dividend Yield: N/A 
  • 3-Month Average Daily Volume: 4,779
  • Assets Under Management: $18.9 million
  • Inception Date: June 17, 2008
  • Issuing Company: DWS

DTO is structured as an exchange-traded note (ETN), which offers 2x daily short leverage to the broad based Deutsche Bank Liquid Commodity Index-Oil. The fund may be used by sophisticated investors with a bearish short-term outlook for crude oil and Treasury bills, but should be avoided by investors with a low tolerance for risk.

ProShares UltraShort Bloomberg Crude Oil (SCO)

  • Performance over 1-Year: 26.8%
  • Expense Ratio: 0.95%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 2,459,008
  • Assets Under Management: $65.9 million
  • Inception Date: November 24, 2008
  • Issuing Company: ProShares

SCO is structured as a commodity pool offering 2x daily short leverage to the broad based Dow Jones-UBS Crude Oil Sub-Index. The fund may be used by sophisticated investors with a bearish short-term outlook for crude oil, but should be avoided by investors with a low tolerance for risk.

VelocityShares 3x Inverse Crude Oil ETN (DWT)

  • Performance over 1-Year: 19.0%
  • Expense Ratio: 1.50%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 18,836,880
  • Assets Under Management: $152.8 million
  • Inception Date: December 8, 2016
  • Issuing Company: Citigroup

DWT is structured as an ETN offering 3x daily short leverage to the S&P GSCI Crude Oil Index ER. The fund may be used by sophisticated investors with a bearish short-term outlook for crude oil, but should be avoided by investors with a low tolerance for risk.