Crude oil ETP inflows highest in 2017 defying threats to the oil price recovery

Crude oil ETP inflows surged to US$38mn last week despite expectations of rising oil supply capping further price recovery.

Crude oil ETP inflows surged to US$38mn despite expectations of rising oil supply capping further price recovery. Oil prices traded in a volatile range last week as they gained support from the weaker dollar and optimism linked to the implementation of Trump’s policies to support the oil and gas industry. However rising crude oil stocks point to further downside. According to Baker Hughes, the oil rig count posted its steepest weekly increase since April 2013 last week as higher oil prices make it lucrative to drill for shale oil in the US again. While OPEC and some non-OPEC countries have made a strong start to implementing production cuts, rising US oil supply threatens to cap further upside among oil prices.

Outflows of US$80mn from gold ETPs, were the highest this year and have reversed four consecutive weeks of inflows. Gold prices came under pressure last week declining -1.3% owing to the strengthening US dollar, the Trump propelled equity rally and rising US bond yields. The Dow Jones Industrial Average index exceeded the much anticipated 20,000 point mark for the first time ever and the S&P 500 index made new highs. The on-going US corporate earnings season is showing signs of strength as 34% of companies reported an average earnings growth 4.4% aiding the equity rally. Increasing risk appetite is distracting investors’ attention from risks of the extreme protectionist stance evident from the first official acts of the recently inaugurated US President Trump such as the signing of the Trans Pacific Partnership (TPP). In this week’s Federal Open Market Committee Meeting (FOMC), the Fed is likely to remain in wait and watch mode and we don’t expect it to have a significant impact on gold prices.

Inflows into diversified basket ETPs worth US$14.5mn have been on the rise for six consecutive weeks in a row as investors seek to benefit from the rise in commodities by diversifying their exposure in broad baskets.

Inflows into global equity ETPs continue to garner momentum led by gold mining and robotic stocks. Owing to record high valuations in global equity markets, investors are being selective and investing in thematic baskets such as gold mining and robotics. Inflows into global equity ETPs totalled US$6.6mn.

Industrial metal ETP inflows rise for the eighth week in a row, led by inflows into broad baskets and copper amounting to US$5.8mn and US$3.9mn. According to the international copper study group (ICSG) the supply deficit in the copper market has been eradicated owing to significant production expansion in China, we expect to see a near term pull back in prices.

Aneeka Gupta – Equity & Commodity Strategist – ETF Securities