MarketMuse update profiles the close watch oil traders currently have on oil related ETF products such as the DNO or the USL. As investments into oil ETF products have continued to soar, resulting in a more stable oil market price, there is a risk that oil prices could drop and as a result cause people to drown. With more, below is an excerpt from the Globe and Mail article, “Why oil traders are keeping a watch on exchange-traded products”.

Tumult in Libya, U.S. rig counts, production plans of the oil exporting cartel and a pact on nuclear relations with Iran can all affect crude supply and demand, but oil traders have kept an equally close watch on retail investors in recent weeks.

Those investors and hedge funds, betting on a reversal of oil’s long rout, poured billions of dollars into exchange traded products at the tail end of the slide last year, providing unexpected support that helped prices stabilize.

Even as concerns about U.S. storage capacity triggered renewed slide over the past week investors have stuck with the view that a bottom might be in sight, pouring more money into financial products backed by oil futures.

There is a risk, however, that their bets could unravel and send oil prices tumbling again because of a market constellation where spot prices may head lower, but storage bottlenecks make futures contracts months ahead more expensive.

Some market participants warn that if that happens, the U.S. benchmark could slide towards $20 from around $47 now.

Holdings in exchange traded financial products have soared since the beginning of the year, especially highly-leveraged ones such as VelocityShares 3x Long Crude Oil ETN (UWTI). according to data from Morningstar investment research firm.

Reuters analysis of weekly flows data shows investors have been boosting positions in several long funds, while unwinding short positions over the past four weeks.

To read the entire article from the Globe and Mail, click here.