Not just OPEC: How oil ETF investors hold sway over the crude market

Right now, the U.S. Oil Fund, one of the best-known of these products, holds about 60,000 crude oil futures contracts, more than 10 percent of open interest on the New York Mercantile Exchange contract for U.S. crude.

NEW YORK – Tumult in Libya, U.S. rig counts, production plans from the oil exporting cartel along with a pact on nuclear relations with Iran can all affect crude demand and supply, but oil traders have kept a similarly close watch on retail investors in recent weeks.

Those investors and hedge funds, betting on the reversal of oil\’s long rout, poured billions of dollars into exchange traded products in the tail end from the slide this past year, providing unexpected support that helped prices stabilize.

Even as concerns about U.S. storage capacity triggered a renewed slide over the past week investors have stuck with the view that the bottom might be in sight, pouring more money into financial products backed by oil futures.

There is really a risk, however, that their bets could unravel and send oil prices tumbling again due to a market constellation where spot prices may head lower, but storage bottlenecks make futures contracts months ahead more costly.

Some market participants warn when that happens, the U.S. benchmark could slide towards US$20 from around US$47 now.

Holdings as a swap traded financial products have soared since the beginning of the year, especially highly-leveraged ones for example VelocityShares 3x Long Crude Oil ETN, according to data from Morningstar investment research firm.

Reuters analysis of weekly flows data shows investors happen to be boosting positions in several long funds, while unwinding short positions in the last four weeks.


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