Will crude oil prices tank? Someone has bet nearly $1 billion on this via leverage

A cohort of oil traders have made a major leveraged bet that oil prices will tank from the highs made during the US-Iran war.

The ProShares UltraShort Bloomberg Crude Oil ETF received inflows worth $977 million in March, through a mix of contra investors and traders adding to their existing short positions. This is the largest monthly inflow that the fund has received since its inception in 2008.

The ETF is meant to deliver twice the inverse of daily crude price moves, meaning, when oil prices fall, the returns are twice of the quantum of the fall and vice versa.

After US President Donald Trump signaled a potential end to the Iran war on Tuesday, the fund saw a rally of 8%, although it still ended the month of March down by 41% as most of these short positions were caught on the wrong side with Brent registering a record monthly advance due to the Iran war.

Despite the flurry of optimism over potential de-escalation, attacks were still continuing this week. An oil tanker was hit near Qatar, with a UK naval group saying the incident caused a fire that was eventually doused.

Its not just the bearish bets, even the bullish funds have drawn record money. The United States Oil Fund (USO) attracted flows worth nearly $700 million in March, the most since the pandemic, while the United States Brent Oil Fund (BNO) saw flows worth a record $600 million.

“I’d expect the flows into SCO to reflect a mix of factors — directional bets on an oil price reversal, alongside hedging and arbitrage activity,” said Todd Sohn, chief ETF strategist at Strategas Securities. “That tends to happen, particularly with esoteric funds, when they become the “center of the universe” during episodic events like this.”

(With Inputs From Agencies)