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Tenacious oil bulls pour US$4b into ETFs on rebound bet

Friday, February 6, 2015 - 00:30

[LONDON] Oil investors are still betting on a rebound after being proved wrong since October.

They've poured more than US$4 billion into oil exchange- traded products in the past four months even as prices tumbled 47 per cent. That included the US$1.99 billion added in January, the biggest monthly inflow in six years.

Oil traded at the greatest volatility since April 2009 after US crude supplies rose from the highest level in more than three decades. Prices reached a six-year low last month as US inventories swelled and the Organization of Petroleum Exporting Countries kept its production above quota for an eighth month.

"There are contrarian buyers in the oil market who think that there is a floor to oil prices," Matt Hougan, president of San Francisco-based research firm ETF.com, said on Wednesday. "Over the last few days they've been vindicated but who knows what happens from here."

A total of US$4.21 billion has been sent into the four biggest US oil ETFs since October, according to data compiled by Bloomberg. The US Oil Fund, the biggest oil ETF, attracted US$1.15 billion in January. The fund, which follows WTI prices, dropped 6.8 per cent on Wednesday on the New York Stock Exchange after jumping 18 per cent in the previous four days.

The number of US Oil Fund shares on loan to short sellers was 31.3 million as of Jan 15, or about 93 per cent of average daily volume, according to exchange data. Short interest was as much as eight times daily volume in June.

The four funds also include ProShares Ultra Bloomberg Crude Oil, iPath S&P GSCI Crude Oil Total Return Index ETN and PowerShares DB Oil Fund. They had 311.5 million shares outstanding on Jan 30, the highest in data going back to 2008, according to exchange data compiled by Bloomberg. The share count dropped to 303.2 million on Tuesday.

WTI futures climbed US$2.30 to US$50.75 a barrel Thursday on the New York Mercantile Exchange, following an 8.7 per cent drop Wednesday that was the biggest since Nov 28. Prices gained 19 per cent in the four days to Tuesday. WTI is down more than 50 per cent from June's peak.

The CBOE Crude Oil Volatility Index, which measures oil price fluctuations using options of the US Oil Fund, climbed to 62.73 Wednesday.

US crude stockpiles grew 6.33 million barrels in the week ended Jan 30 to 413.1 million, the most since Energy Information Administration weekly data started in 1982. Stockpiles at Cushing, Oklahoma, the delivery point for WTI futures, increased 2.52 million barrels to 41.4 million.

Companies including BP Plc, Royal Dutch Shell Plc and Chevron Corp have announced investment cuts in response to the price collapse.

US drillers pulled 94 rigs from US fields in a single week, the most on record, Baker Hughes Inc said on Jan 30.

"Until you really see production starting to be cut, you are not going to see any kind of sustainable rally," Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors, said on Wednesday.

BLOOMBERG