Funds tracking oil experienced large inflows last month as US investors bet on a recovery in crude prices.
Almost $1.7bn was ploughed into oil exchange traded products in December, according to ETF Securities, as US crude prices approached $50 a barrel for the first time in five and a half years.
“This is clear indication that investors are buying into the price dip,” said Nitesh Shah, analyst at ETF Securities, an investment group which runs some of the biggest exchange traded commodity funds. “They are taking a contrarian view.”
The figures are a rare bright spot for commodities, which were the worst performing major asset class for the third year running in 2014, recording their biggest annual loss since the global financial crisis.
The Bloomberg Commodity Index, which tracks the performance of 22 futures contracts, fell almost 17 per cent per cent in 2014 to its lowest level in five and a half years too, as the prices of several key commodities slumped because of rising supplies and weak demand.
Another factor working against the sector was a strengthening US dollar.
Cash is pouring into oil ETPs even as commodity-linked index investments experience record withdrawals. Barclays estimates investors pulled $18bn out of commodity linked indices between January and November last year.
Analysts say this highlights a greater discrimination on the part of investors after several years of poor performance, with investors targeting particular commodities such as oil and gas rather than a broader commodity indices.
“There is still a good level of investor interest in commodities and we are already seeing heavy investor buying in oil as a result of the price fall,” said Kevin Norrish, analyst at Barclays.
Overall energy ETPs had $2.47bn of inflows during the fourth quarter — the most since ETF Securities started collecting data in 2009 — as investors bet price declines had been overdone.
Brent and its US counterpart, West Texas Intermediate, dropped almost 50 per cent last year as relentless production from the US coincided with a slowdown in global demand.
The rout intensified after Opec’s decision in November to keep production at its existing 30m barrel-a-day level, rather than cut output to bolster prices.
“We saw something similar in coffee when prices plummeted in 2013,” said Mr Shah, noting the price then rallied by around 50 per cent.
However, few oil analysts believe the price will rally significantly in the near term because of the build-up in crude and petroleum stocks.
Mr Shah said crude oil ETPs accounted for the lion’s share of inflows in the fourth quarter but investors also ploughed almost $800m into natural gas funds in the same period.
US natural gas prices have fallen around 27 per cent since the start of December, hit by record output and a mild start to the winter.
Mr Shah said the inflows in oil and gas ETPs were largely driven by US investors, who accounted for 85 per cent of the global flows.
Several of the biggest exchange traded funds tracking oil have seen their valuations swell over the past month. But some analysts say this reflects demand from big banks and prime brokers. They want new fund shares created so they can lend them to investors betting on further price declines. These bearish investors would sell the borrowed shares and look to buy them back at a lower price.