Industry Updates

World’s largest oil ETC sees record outflows

Investors pulled almost $300m from BRNT last week

Tom Eckett

OPEC oil

Oil exchange-traded commodities (ETCs) posted their biggest outflows in over a year last week, driven by the largest in the market, WisdomTree’s Brent Crude oil product.

In the week to 30 June, investors pulled $295m from the $2.2bn WisdomTree Brent Crude Oil ETC (BRNT), the most since it started trading in February 2012, according to data from Bloomberg Intelligence.

BRNT became the largest oil ETF in January after it recorded $1bn inflows the month prior – $1.8bn over the past year – as it fell below $80 a barrel for the first time since January 2022.

The outflows are a sign of profit-taking after Brent Crude oil prices jumped 14.3% over the past month, topping $85 a barrel yesterday in anticipation of the Organisation of Petroleum Exporting Countries (OPEC) last Friday.

The prospect of a soft landing and hopes that we are entering the later stages of the rate tightening cycle have also helped oil prices gain.

Nitesh Shah, head of commodities and macroeconomic research for Europe at WisdomTree, said: “OPEC and its allies have been keeping oil supplies tight with cuts to production. The visible tightness has convinced the market that announced cuts are not just empty rhetoric.

“Saudi Arabia (the group’s de facto leader) is unlikely to change policy course now. Market optimism that we are nearing the end of a rate tightening cycle and that an economic soft-landing could easily be achieved has also helped oil prices gain.”

OPEC had initially curbed oil supplies in a bit to avoid a potential meltdown in oil prices after rising interest rates globally reined in demand.

Weaker than anticipated post-COVID-19 China growth – the world’s biggest oil importer – has also kept prices lower for longer.

Meanwhile, Russia too finally has the incentive to cut supply and support oil prices due to its waning ability to fund the war in Ukraine.

Francisco Blanch, commodity and derivative strategist at Bank of America, said: “Deep discounts forced by the oil price cap have finally started to impact the ability of the Russian government to collect oil taxes, straining the war effort in Ukraine and creating significant cracks in military command chains.

“As such, we reiterate our $90 a barrel average Brent price forecast for 2024. Still, rising OPEC spare capacity could act as a cap to oil prices and recession risks have not disappeared. More importantly, a spike in commodity prices could reignite a run-up in interest rates and restart the battle between oil and money.”

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