The WisdomTree WTI Crude Oil (CRUD LN), Europe’s largest ETP providing exposure to crude oil prices, has surpassed $2.5 billion in assets under management.
Investors have piled into oil ETPs in recent months.
The milestone was reached on Monday 18 May 2020 on the back of strong net inflows as investors sought out the bottom of the oil market and a recovery in the price of West Texas Intermediate futures contracts.
Crude oil prices were driven to record lows this year due to a supply glut driven by sparring oil-producing nations and the Covid-19 pandemic’s impact on global demand.
With storage facilities brimming with oil, the expiring WTI contract for May delivery remarkably sank far below zero last month as speculative traders were desperate not to be stuck with oil they were unwilling or unable to take delivery of.
CRUD was largely spared from any serious loss, however, as the ETP tracks the Bloomberg Commodity Oil Subindex which had already rolled into the June contract two weeks prior to the carnage that unfolded.
The spike in oil price volatility led many issuers to make drastic changes to their oil ETPs – the United States Oil Fund (USO US), the largest ETF worldwide to provide exposure to oil prices, pushed its oil futures exposure as far out as June 2021.
WisdomTree has notably halted creations in CRUD (potentially in response to feedback from the futures exchanges), along with most of the firm’s other oil ETPs, until markets are deemed to be returning to normal.
Record low oil prices have led many investors to enter the market, hoping to profit from a quick rebound as the world emerges from lockdown and oil demand picks up again.
CRUD gathered over $1.1bn in net inflows during April and picked up another c. $500 million settling right at the start of May before new creations were suspended (redemptions are still permitted hence the NNA MTD figure stands at $431.3m).
Many of these investors have picked up a tidy profit as WTI futures contracts have risen steadily throughout the past three weeks.
The ongoing supply of crude oil tapered off in May as a pact between major oil producers, led by Saudi Arabia, Russia, and the US, to cut output by 9.7 million barrels per day came into effect. Combined with a pick-up in oil demand from the scaling back of lockdown restrictions globally, storage facilities have begun reporting a reduction in their capacity.
Coming from a low base of already cheaply priced oil contracts, the rally in futures contracts has led oil ETPs to soar. CRUD is up 68.5% since bottoming out on 28 April 2020, while WTI contracts for June or July delivery are still trading at historically low levels around the $32 per barrel mark.
WTI’s contract for June delivery expires today, although it is expected to expire peacefully as production cuts and the easing of stay-at-home restrictions continue to support prices.
Interestingly, the futures curve for WTI contracts has flattened significantly after being in a state of super-contango earlier in the year. The implied rolling cost between June and December contracts is just 4.9%, making an investment in oil ETPs more palatable to a retail audience.