The exchange traded funds are becoming a large force in the oil commodities market, accounting for a third of the most active oil futures contracts.
Investors have been buying up oil futures-based ETFs in an attempt to catch a falling knife this year after the plunge in West Texas Intermediate oil futures – WTI was trading around $46.0 per barrel Friday.
For instance, the United States Oil Fund (NYSEArca: USO), the largest oil U.S.-listed oil ETF, has more than tripled in size this year, attracting over $2 billion in net inflows year-to-date, with total assets under management at $3 billion, reports Gregory Meyer for Financial Times.
The heavy inflows may suggest some traders are getting burned as USO declined 21.8% year-to-date. However, since the USO is the largest oil ETF play on the market, some of the net inflows into the fund may be attributed to large traders borrowing shares for short plays as well. [Don’t Frown, Average Down: Investors Still Chasing Oil ETFs]
About a fifth of the fund’s shares are held short, suggesting the “bulk of USO investors are either long or have some sort of complicated trade or hedge”, John Hyland, the fund’s chief investment officer, said in the article.
Consequently, due to the robust interest in oil futures-backed ETFs, ETF Securities analysts calculate that the ETFs now hold between an equivalent 175 million to 180 million barrels of WTI for delivery in May, or about 30% of combined open interest for May WTI futures contracts.