Industry Updates

Europe’s largest oil ETC sees inflows as global supply crunch pumps prices

Rebounding oil price peaking investor interest in the commodity

Theo Andrew

Oil rigs and charts

Investors are anticipating a bull run oil markets with Europe’s largest oil exchange-traded commodity (ETC) recording $200m inflows last week as global supply shortages and rising demand lead to soaring prices.

According to data from Ultumus, the $1.4bn WisdomTree WTI Crude Oil ETP (CRUD) saw inflows of $204m in the week ending Friday 24 September as oil topped $80 a barrel for the first time in three years on Tuesday.

Rising oil prices are in step with a broad rally in energy markets in the clearest sign yet of an impeding global energy shortage with investors looking to cash in on the opportunity.

The inflows could be signs of a turnaround for CRUD, which has recorded net outflows of $662m year to date, despite posting returns of 63.2% over the same period.

In another sign of changing investor sentiment, JP Morgan Cazenove recently upgraded the sector to overweight in its portfolio as rebounding oil prices deliver a sector boost.

“We recently upgraded the sector to overweight in our portfolio,” Mislav Matejka, head of global and European equity strategy at JP Morgan, said.

“The energy sector has also struggled, losing close to 20% relative from March to August this year. However, the rebound in oil prices has helped the sector perform better since then.”

Shortages have been compounded by the recent damage caused by Hurricane Ida, resulting in long-term outages to US offshore Gulf of Mexico production.

Aneeka Gupta, director of research at WisdomTree, said: “As of 24 September 2021, crude oil stocks amounted to just shy of 300,000 barrels per day, meaning that a total of 27.4 million barrels less crude oil has been produced since Hurricane Ida made landfall at the end of August.”

She added that geopolitical supply risks could keep the market tight through to summer 2022 with output losses possible in Iran, Iraq and Libya.

In addition, Robert Minter, director of investment strategy at Aberdeen Standard Investments, said current supply shortages are being exacerbated by governments across the globe restricting capital flows to fossil fuel companies.

“The plan of governments has been to restrict capital, allow oil supply to fall by this amount or more, and force users, the demand side to shift to alternatives,” he said.

“While this is a ‘cheap policy’ that does not affect government budgets, it does nothing to incentivise people to demand more renewable energy.”