ETF investors cashing in on oil recovery

Added 24th October 2016

With November’s planned production cut by the Organisation of Petroleum Exporting Countries (OPEC), global investors have sold down leveraged oil and moved to short the commodity

ETF investors cashing in on oil recovery

According to WisdomTree’s latest ‘Short & Leveraged’ report, since Opec announced it would halt production, WTI Crude prices surged from $45 (£36.7, €41.3) per barrel to $51 by mid-October, a rise of 15%.

Leveraged long investors profited from the spike as $850m was withdrawn from global leveraged long oil exchange traded commodities (ETCs) tracking WTI since late September.

Conversely, short positions jumped, with short ETCs gathering $510m in the same period.

Nick Leung, research analyst at WisdomTree, said: “The OPEC announcement has sparked a very clear move by short and leveraged investors globally, with contrarian long investors using the jump in price to lock-in gains as short investors increase their bets.”

Since the announcement the oil price has shown few signs of weakness, but Leung said any further gains were likely to be capped by profit-taking by long investors and potentially increasing flows into short ETCs.

 “While long-only investors have benefited from the planned cut to production, seeing double-digit gains, we do not see this as the start of a prolonged bull market for oil,” he said.

 “Instead, this is a recalibration for oil from very depressed levels. We would not expect oil prices to retreat from here significantly, but equally we do not see them surging back to levels seen prior to the great crash of 2014 when the commodity traded above $100 per barrel.

“There is still a glut of oil supply globally with significant inventory levels still needing to be drawn down, so until either demand jumps or production falls significantly, prices are unlikely to move sharply in either direction.”

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