Plummeting oil prices have shaken investors, particularly here in oil-rich Canada. Although prices have rallied here and there over the past few weeks, most are wondering when we’ll hit bottom—and when the rebound will start. The answer to that question really depends on whom you ask. Back in October, notoriously bearish investor David Rosenberg, chief economist with Gluskin Sheff, floated the idea that it could go as low as US$20 a barrel based on pure supply and demand.
And while it might not fall that far, there are many who believe low oil prices could persist for some time, creating a host of other problems.
That’s what the bears are saying—then there are the bulls who believe a big bounce in prices is around the corner. This group is putting some serious cash its their beliefs—and that money is finding its way into exchange-traded funds (ETFs), according to this article from Bloomberg. All told, oil investors betting on a price rebound have put more than US$4 billion into oil ETFs over the past four months at the same time as prices have been plunging. January showed the biggest monthly inflow in six years, says Bloomberg.
Assets in the biggest oil ETF—US Oil Fund—jumped by $1.15 billion in January. The ETF tracks WTI prices, which dropped 6.8% last Wednesday after a jump of 18% in the four days before.
Short-selling is rife however, reports Bloomberg, “the number of US Oil Fund shares on loan to short-sellers was 31.3 million as of Jan. 15, or about 93% of average daily volume, according to exchange data. Short interest was as much as eight times daily volume in June.”
At the end of the day, the bears have the loudest voices right now, especially as oil prices continue to drop. However, the bulls are speaking with their wallets—and they’re showing their love for the black sticky stuff by buying ETFs.