Fundamental weakness sends oil ETP investors scurrying

Aug 17th, 2016 | By | Category: Commodities

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Succumbing to renewed fundamental weakness, oil futures prices crashed by over 15% in July, further exacerbating the outflows from oil-linked exchange-traded products (also known as exchange-traded commodities, or ETCs). According to research from ETF provider WisdomTree Europe, investors have pulled out of oil ETPs to the tune of $2.4bn since March, a stark contrast to earlier inflows of $2.6bn at the start of the year.

Although producing a strong rally in price of 52.8% between 1 February and 31 May 2016, from $31.62 per barrel to $48.33 per barrel, the price of 1-month WTI oil futures was significantly pared back to $40.06 per barrel by the end of June, representing a 17.1% decline for the month.

The below graph illustrates the relationship between crude oil prices and oil ETF fund flows:

Source: WisdomTree, Bloomberg.

Source: WisdomTree, Bloomberg.

While investors clearly lost confidence in long oil ETPs, some tactical traders holding positions in short oil ETPs realized significant gains during the period between 30 June and 31 July 2016.

The Boost WTI 3x Short Daily ETP (LSE: 3OIS), providing triple the daily inverse performance of the NASDAQ Commodity Crude Oil ER Index (which tracks the performance of front-month WTI oil futures contracts) returned 52.0% compared to benchmark returns of 15.2%.

The Boost WTI Short Daily ETP (LSE: OILZ) and the Boost WTI 2x Short Daily ETP (LSE: 2OIS), providing the inverse and double the inverse daily return of the aforementioned index, are up 16.3% and 33.8% respectively over the same period.

Investors may also get inverse daily exposure to WTI oil futures through ETPs offered by London-based ETF Securities. These include the ETFS 1x Daily Short WTI Crude Oil – USD (LSE: SOIL), TER – 0.98%, and the ETFS 3x Daily Short WTI Crude Oil – USD (LSE: 3CRS), TER – 0.98%.

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