Industry Updates

Europe’s largest oil ETP crashes through $2.5bn barrier amid price recovery

Tom Eckett

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Bulls have piled into Europe’s largest oil exchange-traded product (ETP) this year in the hope of a rebound in prices following the historic market volatility.

The WisdomTree WTI Crude Oil ETP (CRUD) has seen its assets under management (AUM) cross the $2.5bn barrier for the first time following a rally in oil prices with CRUD up over 65% since the end of April.

The AUM increase comes despite WisdomTree halting creations on CRUD since 30 April due to "unprecedented levels of volatility in WTI crude oil contracts".

According to data from Ultumus, CRUD saw over $1bn inflows in April before creations were suspended, a move which was also taken on the world's largest oil ETP, the United States Oil Fund (USO) last month.

The appetite for oil ETPs comes after prices fell from $68 a barrel at the start of the year to record low levels amid storage concerns combined with weakening demand across the globe.

This came to a head on 20 April when West Texas Intermediate plummeted to as low as $-40 a barrel as traders looked to offload the May futures contract.

While CRUD and the other ETPs had already rebalanced to the June contract, the fall in prices below $0 highlighted the issue with being entirely exposed to front-month contracts.

This led many ETF issuers and index providers to rebalance their products to later months to ensure investors were not entirely wiped out.

For example, Bloomberg announced on 24 April plans to advance the role of the WTI July contract to September across its Bloomberg Commodity Index (BCOM) suite which CRUD tracks.

It is thought the majority of flows into products such as CRUD has come from retail investors making commentators concerned they may not understand the risks involved with gaining exposure to the futures market.

The historic low oil prices has caused the market to enter “super” contango – the process where each futures month is more expensive than the last – which increases the cost of rolling contracts.

Regulators on notice as ETPs exacerbate volatility in oil markets

Warren Pies, energy strategist at Ned Davis Research, commented: “At best, they are ways to gain programmatic futures exposures. At worst, they are designed to implode.”

However, WTI has soared in recent weeks as economies slowly begin to recover from the coronavirus meltdown and is now trading above $31 a barrel, as at 19 May.

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