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For Some Reason, Oil ETFs Still Have Fans

June 21, 2017 10:20 am
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For Some Reason, Oil ETFs Still Have Fans

Blame it on bottom-fishing or bullish biases, but one of this year's worst-performing commodities still has supporters in the world of exchange traded products where the slumping United States Oil Fund (NYSE:USO) has been attracting new money.

Bear Territory

"In spite of the sell-off that continues to rule most days in Crude Oil, USO still has managed to attract new assets in 2017 (adding over $460 million YTD via inflows)," said Street One Financial Vice President Paul Weisbruch in a note out Tuesday. "In fact, we have examined the evident “Long Bias” in Crude Oil that seems to prevail in ETF land, at least judging by asset levels and the trend of asset flows regardless of the direction of Crude Oil prices (which has largely been down for the past several years)."

With Tuesday's loss of nearly 2 percent, USO labors below $9 and is down more than 23 percent year-to-date, officially marking bear market territory.

Hedging Their Bets

Options market data suggest that some investors are bullish on USO and could be using puts to hedge long positions in the ETF.

"The fund, which has been pummeled lately to an $8 handle (it traded as low as $7.67 which was an all-time low for the fund back in February of 2016) has attracted a flurry of August put buyers on the move lower today in Crude, specifically with activity hitting the tape in 8, 8.50 and 9 strike options in USO," said Weisbruch.

Add to that, bullish biases are evident among oil ETFs as the largest funds in this space are all long funds although there are plenty of inverse oil ETFs to consider.

“Believe it or not, the top five funds in the greater 'Crude Oil' tracking space are all structured to provide 'Long' exposure to the commodity, and USO has been the largest fund in the space for a very long time (its inception was in April of 2006), and it continues to be a favorite of hedge funds and traders,” said Weisbruch.

The double-leveraged inverse ProShares UltraShort Bloomberg Crude Oil (NYSE:SCO) had $205.1 million in assets under management at the end of the first quarter, while the ProShares UltraPro 3x Short Crude Oil ETF (NYSE:OILD), which debuted earlier this year, is working on attracting a following among active traders.

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