ETF investors take profits following OPEC oil deal

Dec 19th, 2016 | By | Category: Commodities

By Nick Leung, Research Analyst at WisdomTree.


Nick Leung, Research Analyst at WisdomTree.

Investors have jettisoned long oil ETFs following the Organization of Petroleum Exporting Countries’ (OPEC) recent decision to curb production, with $43m in redemptions from leveraged long positions and an 80% year on year jump in trading volumes.

Data from WisdomTree’s Boost range of products revealed investors moved quickly to lock-in gains from the OPEC meeting, opting to exit trades – and, in many cases, take short positions – even in advance of the crucial gathering of non-OPEC members on 11 December.

In total, close to $700m was traded in Boost Oil ETPs in the aftermath of the OPEC decision, bringing year to date on exchange traded activity to over $8.4bn and primary market activity to over $1.4bn.

The widespread profit-taking that we’ve seen comes on the back of a surge in oil prices and was widely expected given the contrarian and often speculative nature of short and leveraged oil investors.

This reversal mirrors the solid inflows into leveraged long oil ETPs earlier in the month. Some $60m of net inflows was seen across these products in the first two weeks of November as investors anticipated a supply-cut agreement being reached.

Despite the subsequent rally in oil prices, caution remains the watchword for now, with long-term concerns over supply/demand imbalances yet to be fully addressed.

This reversal in S&L investor sentiment suggests there is scepticism about the long-term success of OPEC’s revised strategy. In particular, investors remain unconvinced that OPEC countries can commit to any meaningful production cuts. Any price increases are likely to be limited to short-term tactical opportunities.

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