Exchange traded funds that track oil futures have accumulated a huge following as various traders utilize the investment tool to time the markets or implement complex trades.
For instance, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, has attracted $1.15 billion in net inflows so far this year, according to ETF.com, growing to $3.6 billion in total assets under management.
Additionally, the VelocityShares 3x Long Crude ETN (NYSEArca: UWTI), which tracks three times or 300% the daily performance of WTI crude, saw $718.6 million in net inflows year-to-date, growing to $1.1 billion in AUM.
Meanwhile, WTI crude oil futures continued to slip this year and are now trading around $29.1 per barrel.
As oil prices plunged, these oil ETF plays have grown more popular. Retail investors are betting on a bottom in oil prices, short-sellers are increasingly utilizing the ETFs as an easy way to hedge bets and arbitragers tried to capitalize on potential opportunities, reports Gregory Meyer for Financial Times.
Due to the surge in popularity, the oil-related ETFs now hold a huge stake in the energy markets. For instance, USO now makes up a quarter of all contracts for April delivery on the New York Mercantile Exchange.
USO holds WTI futures contracts in the nearby month and rolls its cash into the next month’s contracts before being forced to take physical delivery.
Despite oil prices dropping to a 12-year low of near $26 per barrel, oil-related ETFs continue to see heavy inflows.