Energy ETP Inflows Rise On Geopolitical Woes

June 25, 2014

Geopolitical concerns from the Ukraine and the Middle East have pushed inflows into exchange traded products with energy exposure towards their strongest quarter in four years.

Data from Markit shows that ETPs with energy exposure are on track for their largest quarterly inflow in four years with the 321 ETPs tracking energy assets receiving over $6.4 (€4.7) billion of net inflows in the second quarter of this year.

A note from the data provider said: “The recent turmoil in Ukraine and the Middle East has seen energy prices spike up again after a couple of relatively calm years. Faced with the prospects of further uncertainty and a recovering economy, Brent crude prices have risen to their highest level in over 18 months after jumping by 4percent in the last month.”

Markit’s data also revealed that investors are positioning themselves in equity tracking energy exposures as opposed to commodity tracking ETPs.

“The recent strong inflows have centred on products with equity exposure in energy producing and exploration firms, rather than products that offer exposure to the physical commodities. Year to date, equity energy funds have seen over 20 times the inflows secured by their commodity peers,” Markit said.

Data from ETF Securities also supported the spike in crude oil prices with inflows of $53.8 million flowing into crude oil ETPs. It reported that Brent crude rose 1.8 percent last week in response and could go higher if the violence spreads further south at a time when seasonal demand for crude remains high. Flows into the providers ETFS Brent hit $45.8 million, the highest since the peak of the Arab spring in 2011.

The ETP provider said in a note that "the Islamic State in Iraq and the Levant’s (ISIS) attack in northern Iraq is likely to derail the country’s plans to increase production of crude oil this year and it is unlikely that Saudi Arabia will be able to make up for the shortfall if the crisis spreads to the south."

Other commodities that have performed well on the back of the geopolitical issues are wheat, silver and natural gas.

ETF Securities showed that money into its ETFS Wheat rose to a four-month high, with $3.5 million of inflows last week as the price gained 1.4 percent on the back of India’s delayed monsoon news.

Similarly, its ETFS Physical Silver ETP has seen inflows rise to a 3-month high with $25.2 million.

Markit also reported that natural gas has seen its prices move 10 percent higher compared to this time last year.

This year has been reasonably good for commodities so far, especially compared to a very poor year in 2013, which saw commodity prices fall.

 

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