Oil ETPs have seen their first significantly inflows, after five weeks of shedding money, as investor expectations edge towards a higher oil price, but skepticism remains.
Weekly figures from ETF Securities showed investors had poured $22m of new money into long oil ETPs, but some $7m has also gone into short oil products, suggesting there is a divide among the market participants as to where the oil price will go.
Oil prices jumped 2% after the latest meeting of the Organisation of the Petroleum Exporting Countries (OPEC) in September, where members finally reached an agreement to cap oil output at 33 million barrels a day.
However, scepticism remains, with ETF Securities saying this move alone is not enough to reduce the surplus in the market. These concerns led investors to sell oil again in October, with the oil price falling 4% by late October on news of rising US oil production and worries OPEC may be unable to finalise the agreement.
Some market participants believe oil prices could fall as low as $30 per barrel; WTI is currently trading at $44 a barrel, and Brent Crude at $46, after recent falls despite OPEC saying it remains optimistic on the output cut. The member states meet again on 30 November to discuss plans.
However, some well-known commentators are more optimistic on the outlook. Most notably, permabear Marc Faber, the author of the “Gloom, Boom & Doom Report” which earned him the nickname ‘Dr Doom’, has suggested the oil price could jump as high as $70 due to the global need for infrastructure.
In an uncharacteristically bullish commentary, Faber told CNBC that the need for new infrastructure in emerging markets, coupled with the expected increase in spending on infrastructure in the US and Europe, will push up inflation and lead oil prices higher.
Meanwhile, not all parts of the world are contributing to the oil glut: for example, while Algeria is looking to boost production, Venezuela’s crude output is down at multi-year lows.
At the same time, global markets are slave to a number of macro economic events, with the tightly-fought US election coming to an end on 8 November and volatility in the financial world spiking as markets struggle to predict which candidate will emerge victorious.
Given this backdrop, investors are unsurprisingly split on their allocations to the asset class, and the volatility in flows is likely to persist for weeks to come.