Betting on Oil Price Drop... 230 Billion Won Flows into March Inverse ETFs

KODEX WTI Crude Oil Futures Inverse (H), 121.4 Billion KRW Inflow
TIGER Crude Oil Futures Inverse (H), 114.5 Billion KRW Inflow
China, World's 2nd Largest Crude Oil Consumer... Lockdown Expected to Reduce Oil Consumption by 20%
International Oil Prices Peak on March 8... Downward Trend
Crude Oil Futures Inverse ETF 1-Month Return Around 8%

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] Investors bet on the decline of international oil prices last month. Among the top 10 exchange-traded funds (ETFs) by capital inflow in March, two were crude oil inverse (price decline) ETFs.

According to the March ETF capital inflow status compiled by the Korea Financial Investment Association on the 27th, KODEX WTI Oil Futures Inverse (H) attracted 121.4 billion KRW, ranking 4th. TIGER Oil Futures Inverse (H) also received 114.5 billion KRW, ranking 6th.

An inverse ETF profits when the price of the tracked index or constituent assets falls. The influx of funds into crude oil futures inverse ETFs indicates that investors are highly anticipating a decline in international oil prices.

[Image source=Yonhap News]

The reason investors bet on the decline in international oil prices is due to lockdown orders in major Chinese cities such as Shanghai. China is the world's second-largest oil consumer after the United States. Shanghai, China's top economic city, accounts for 4% of China's total oil consumption. The Chinese government estimates that oil consumption will decrease by about 20% in April due to lockdown orders in major cities. Recently, concerns about a lockdown in Beijing have also emerged. The Chinese government plans to conduct COVID-19 PCR (nucleic acid) testing on about 90% (20 million people) of Beijing's entire population before deciding the scope of the lockdown.

International oil prices peaked at $76 per barrel at the beginning of the year and reached a high on March 8 before declining. Dubai crude and West Texas Intermediate (WTI) rose to $123 on March 8 but have since fallen to around $100.

[Image source=Yonhap News]

The crude oil inverse ETFs that ranked in the top 10 recently turned positive in returns. The recent one-month returns of KODEX WTI Oil Futures Inverse (H) and TIGER Oil Futures Inverse (H) were 8.67% and 8.47%, respectively. Their 3-month (6-month) returns were -25.95% (-31.88%) and -25.92% (-32.04%), respectively, showing losses. China's lockdown of Shanghai occurred at the end of March, coinciding with the period when crude oil inverse ETFs began to generate profits.

Shim Soo-bin, a researcher at Kiwoom Securities, said, "Concerns about a slowdown in oil demand have increased recently due to the resurgence of COVID-19 in China, the acceleration of tightening by the U.S. Federal Reserve (Fed), and economic slowdown forecasts," adding, "Oil prices are expected to continue fluctuating this week between demand slowdown and supply shortages."