Investors withdraw from US Oil Fund amid rising volatility

The alarmingly rising volatility is forcing investors to offload their exposure in 'The US Oil Fund,' the largest exchange traded fund (ETF) with holding in West Texas Intermediate (WTI) futures. It's estimated that over 19 million shares of US Oil Fund ETF were sold making the volume a record level in weekly redemption since the inception of ETF in 2006. 

According to the latest Bloomberg data, 19.3 million shares were sold and after this the net outstanding of shares eased to 176 million as on 4 September indicating the lowest since 11 August. The outflow of $290.9million during the week was the highest since December 2013.

From late March onwards, oil trading slipped in high volatility as prices were fluctuating in the global markets. 

The CBOE Crude Oil Volatility Index rose 57.51 on 1 September indicating its highest level since 17 March. The index tracks volatility level of the ETF.

Oil prices turned more volatile from the day it fell below $40 a barrel. Adding to this, China economy slowdown, drop in manufacturing industry output, downward revision of GDP growth rate made the situation further worst for the oil market. 

Oil futures also slipped into pressure as market expected that there's rise in inventories by 250,000 barrels last week.

Oil price dropped over 25 percent from the peak level recorded in June. US crude stock inventories are at 100 million barrels, which is above the five-year average. There's speculation that glut in oil supply is likely to continue for some more time.

Energy analysts say that outflow of money is being witnessed ever since the oil markets turned volatile. 
Carl Larry, Head of oil and gas for Frost & Sullivan LP in Houston, said: "There's lot of volatility in the market. We're seeing money being pushed away from oil."

The US Oil Fund eased further 0.4 percent to $15.02 on Tuesday. WTI fell marginally 0.2 percent to $45.94 a barrel on New York Mercantile Exchange. 

However, oil prices started moving upwards in Asian trade on Wednesday. Chinese financial markets are base for oil price fluctuation and recent crash in the dragon country resulted in high volatility in the global energy markets. 

Taking cues from overnight rebound on the US markets, Shanghai index rose 2.29 percent and this further boosted oil price rise. 

Oil price dropped by 14 percent this year so far and was trading at half the price of what it used to be a year back.

Today's marginal recovery is only temporary as the real volatility hasn't disappeared in the global market, feel the analysts.