ETF Chart of the Day: Oil, the Leveraged Way

Volatility in the Crude Oil space in terms of the futures and linked ETP products has been extraordinarily high lately, and one can simply look at a daily chart in the largest Crude Oil tracking ETF USO (United States Oil Fund, Expense Ratio 0.45%) for a quick primer on what we are speaking about.

Just seven trading sessions ago the fund had a $20 handle, but on heavy trading volume has been blitzed as low as $16.95 on an intraday trading basis just this past Tuesday, only to rebound somewhat to current levels approximately at $17.67. Crude Oil is certainly not trading in a vacuum, and seems linked to global equity weakness, particularly in China. In terms of fund flows, USO has pulled in >$360 million since the first of July on the weakness lately, but what is even more interesting to us is the larger inflows in a long leveraged Oil tracker, UWTI (VelocityShares 3X Long Crude Oil ETN, Expense Ratio 1.35%), which has reeled in >$430 million during this same time frame.

UWTI trading volume has been incredible lately versus its average daily trading volume, with several days eclipsing more than 100 million shares traded daily (versus ADV of about 70 million shares). It should be noted that the fund itself has only a $2 handle now, so that said, it would be expected that it trades a large number of shares daily when it trades, due to the notional dollars component since it is a lower priced security.

Nonetheless, when we see short term inflows of large scope into this fund, it typically demonstrates that traders are leaning long, at least in the short term and perhaps speculating on a substantial bounce in Crude Oil prices.

This said, as quickly as the assets enter funds such as UWTI, sometimes they can exit just as fast, requiring us to monitor the daily and weekly asset inflows and outflows in this and related funds to see if there is any sea change in the near term.

UWTI is actually the second largest “Crude Oil” linked ETP in the U.S. listed landscape, with assets approaching $1 billion, behind of course the aforementioned USO. Another levered long ETF that operates in the Crude Oil space, UCO (ProShares DJ-UBS Crude Oil, Expense Ratio 0.95%), has pulled in more than $200 million during the month of July as well.