Best Of 2016: The Most Dangerous Oil ETFs

February 12, 2016

[Editor's Note: We are rerunning some of our best stories of the year.]

About six months ago, I wrote about the billions of dollars that were flowing into crude oil exchange-traded products (ETPs) like the United States Oil Fund (USO) and the VelocityShares 3X Long Crude Oil ETN (UWTI) despite the absolutely horrendous performance of these products.

"Foolish" is how I described these traders at the time. Another way we can describe them is "eternally optimistic."

Half a year later, these traders are back at it, buying USO and UWTI hand over fist on hopes they can make a quick profit if oil rebounds. So far this year, USO has seen $1.2 billion in inflows. At the same time, UWTI has seen $717 million in inflows, with $231 million of that coming on Wednesday alone.

Money Pits
That brings the inflows total for USO and UWTI since the start of 2015 to $4.2 billion and $2.4 billion, respectively. Those are monster numbers for these fairly niche commodity products, but traders have nothing to show for their bold bets—nothing but huge losses, that is.

Even with today's big bounce, crude oil is down 21.3% year-to-date. Likewise, USO lost 24.2% in that period, and UWTI plunged 62.4%. This is on top of the 46% and 92% losses for USO and UWTI, respectively, last year.

YTD Returns For Front-Month WTI Futures, USO, UWTI

These two ETPs have effectively acted like money pits, taking in billions and leaving buyers with pennies on the dollar. Aside from the fact that trying to time oil's bottom is a risky endeavor to begin with, traders are playing with fire by buying these types of products.

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