Oil Investors Keep Betting Wrong on When Market Will Bottom

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Investors betting on a rebound in oil prices are nothing if not tenacious.

They have poured the most money in more than four years into exchange-traded products that track oil as prices fell 18 percent this month. It’s the third consecutive month that the four biggest U.S. funds have received money, during which time futures have plunged 41 percent.

“It’s a testament that after such a wild selloff people are more and more eager to step in and wait for this eventual rebound,” said Stoyan Bojinov, a Chicago-based analyst at ETF Database. “Oil looked cheap a month ago and it’s even cheaper today, that’s why we continue to see these inflows.”

Oil prices have tumbled by half since June amid surging production and slower than expected demand growth. Output in the U.S. is the highest in three decades, and OPEC, responsible for about 40 percent of global supply, maintained its output target at a Nov. 27 meeting. The U.S. Energy Information Administration said last week that consumption around the world next year will be 390,000 barrels a day less in 2015 than it forecast in October.

WTI for January delivery gained $1.20, or 2.2 percent, to $55.31 at 10:19 a.m. on the New York Mercantile Exchange after ending at $54.11 yesterday, the lowest settlement since May 2009. The more actively traded February contract was up 2 percent at $55.43 a barrel. The EIA expects WTI to average $62.75 a barrel next year, down from the October estimate of $101.67.

Commodities Slump

Oil funds keep receiving money even as investors flee commodities amid the price slump in oil, corn and gold. ETFs tracking metals, energy and agriculture have seen a net withdrawal of $169.4 million this year.

ETFs that track oil prices give people the opportunity to bet on price moves without requiring the large amount of capital necessary to invest directly in commodity exchanges. They also gives hedge funds that normally trade equities a chance to wager on a commodity without setting up new back office systems.

The four biggest U.S. exchange-traded products tied to oil, including the U.S. Oil Fund and ProShares Ultra Bloomberg Crude Oil, received a combined $702.2 million this month as of yesterday, following a $559.85 million inflow in November, according to ETF data compiled by Bloomberg. It’s the most in any month since May 2010, when the funds received $1.54 billion.

The four funds had 121.2 million shares outstanding yesterday, the most since August 2010, according to data compiled by Bloomberg.

“You want prices lower if you’re buying,” John Hyland, chief investment officer of United States Commodity Futures Funds, the Alameda, California-based manager of the United States Oil Fund, said by telephone. “Your chances of getting a big bounce are better if you’re buying at $50 or $75 than at $100 or $125.”

(A previous version of this story was corrected to reflect the month of the WTI crude contract in the fifth paragraph.)

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