Oil investors take profits on price rise, reports ETF Securities

Aug 2nd, 2017 | By | Category: Commodities

ETF Securities has reported that the 6% oil price rise seen during the week beginning 24 July 2017 has led to outflows of $53 million as ETF/ETP investors took profits. The recent US inventory drawdown was much greater than expected, providing the catalyst for the recent price appreciation.

Oil investors take profits on price rise reports ETF Securities

The price of oil rose by 6% last week but remains in the $40-55 range established since April 2016.

James Butterfill, head of investment research and strategy, ETF Securities, commented: “Investors are using price volatility as an opportunity to buy on weakness and sell on strength. Although US stockpiles are now below last year’s levels, the rising trend in crude production highlights a continued rise in supply.

“We believe this puts a limit of $55/bbl on oil prices, particularly as the marginal cost of production in the US continue to fall and OPEC struggles with compliance of its production freeze.”

Despite the outflows over the past week, oil inflows for 2017 so far still stand at $350m, as investors trade the upper and lower bands of the now established $40-55 per barrel trading range.

ETF Securities offers spot oil price exposure through the ETFS WTI Crude Oil (LON: CRUD) and the ETFS Brent Crude (LON: BRNT). CRUD and BRNT have assets under management (AUM) of $941m and $124m respectively, and each has a management expense ratio (MER) of 0.49%.

Elsewhere in commodities, precious metals ETFs/ETPs recorded $19m of inflows during the week, reversing a recent run of outflows. Dovish comments from the Federal Reserve, the failure of the Trump administration to repeal Obamacare, and the corresponding weakness of the US dollar are all potential reasons for the reversal in appetite for safe-haven precious metals. “Silver flows were flat for the week but have been popular over the last month with inflows of $75m,” stated Butterfill. “We believe this is due to an anticipated increase in industrial demand and attractive valuations relative to gold.”

In the soft commodities space, wheat has been the worst performing crop over the past month but remains by far the best performing in 2017 to date, up 7.5%. This recent weakness led to ETP inflows of $6m during the week and follows $23m of profit taking outflows over the previous month. Butterfill commented, “We continue to see potential downside correction in the near term. Net futures positions in wheat recently reached a two-year high while fundamental projections for 2017/18 in the WASDE report are similar to 2015/16 levels.”

Investors looking for exposure to wheat could try the ETFS Wheat (LON: WEAT), which has AUM of $84m with an MER of 0.49%. ETF Securities also offers a euro-hedged wheat fund, the ETFS EUR Daily Hedged Wheat (Xetra: 00XS) which has assets of €22m and also has an MER of 0.49%.

Other notable ETP flows included the continuing trend from long to short euro positions. During the week, long euro ETPs saw $20m of outflows while short euro ETPs saw $26m of inflows, primarily against the dollar. “The ECB’s strategy to drip-feed the market with subtle hints on tapering is not quite working out, having pushed speculative long trades to overcrowded positions,” said Butterfill. “This is in stark contrast to the US where Fed tightening actions are not strengthening the currency, while speculative long positions remain subdued.”

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