Retail investors have become a larger force in the oil market, betting on a potential rebound in the energy commodity through exchange traded funds that track crude futures contracts.
For instance, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate oil, held 57,956 NYMEX May crude contracts as of March 30, compared to 7,151 front-month NYMEX crude contracts back at the end of September, reports Geoffrey Craig for Platts.
In the six months ended March 30, USO experienced $2.8 billion in net inflows, according to ETF.com.
Nevertheless, USO experienced $252.4 million in outflows in the week ended April 2, which suggests that either some traders are engaging in the time-honored tradition of profit taking or some short-sellers are calling it quits by covering their calls and exiting positions – investors with heavy short positions are forced to cover, or buy back, their shorts in the event of a price appreciation at a loss and liquidate their positions.
Additionally, for those with a lower appetite for risk, PowerShares DB Oil Fund (NYSEArca: DBO) tracks a rules-based index of futures contracts, following a so-called Optimum Yield strategy. The ETF can hold contracts as far out as 13 months and dump contracts at any point in an attempt to limit the negative effects of contango. DBO also attracted $538.3 million in assets over the past six months. [Widening Contango Could Cut Into Popular Oil ETF’s Returns]
As of March 27, ETF’s implied futures positions for nearby WTI futures accounted for about 165,000 contracts, or 30% of overall May open interest. [Oil ETFs Dominate Futures Market]
Due to the sudden interest in futures-backed oil ETFs, observers argue that retail speculators have been a major factor in supporting the energy markets.