Outflow From The Largest US Oil ETF Reached $1 Billion In April-May

The biggest U.S. exchange-traded fund (ETF) that tracks oil, the United States Oil Fund, known as USO, is heading for the largest two-month outflow in six years. Investors are worried that it could be the end of crude’s 30 percent rally.

Shareholders of the USO have withdrawn almost $1 billion so far since the beginning of April, Bloomberg reports. The news agency points out that “crude dropped about $12 a barrel after a $1.4 billion exodus from the fund in the two months ended June 2009“.

“The oil rebound has run out of gas and now you are seeing nervous investors with itchy trigger fingers bailing out of USO,” Eric Balchunas, a Bloomberg Intelligence analyst, said May 27. “They don’t want to get burned by another drop in oil.”

“Investors poured $2.86 billion into the USO in the six months ended March 31 as oil slumped and started to sell when crude turned to growth.They used the 30-percent rebound in oil prices as an opportunity to reap profits,” RT reports.

The Organization of Petroleum Exporting Countries, also knows as OPEC, has predicted in its long-term strategy report that supply from non-OPEC countries will continue growing. It’s highly probable that North American shale production will continue to deflate prices, Reuters reported.

OPEC is meeting in Vienna on June 5 to discuss output policies. Last November, the oil cartel made decision to keep production at high levels in order to gain its market share.

Earlier this year on March 11th, Goldman Sachs President Gary Cohn told CNBC he was very concerned about the short-term window for oil. He thought crude prices could have fallen to $30 a barrel.

“That crude oil backs up in the system (…) I’m concerned we’re going to run out of crude oil storage, land-based storage in the United States, especially in the mid-continent and Texas (…) If the industry runs out of storage, front-month contracts for oil could plummet, (…) Forward prices could stay relatively stable, but the headline may read, ‘We’ve got $30 oil in the United States’,” Gary Cohn said.

Gary Shilling, a US consultant, sees even more extreme scenario and suggested prices could drop as low as $10 per barrel! In his opinion the plummeting oil prices are being pushed even lower by three major factors:

1. Energy-efficient technology.
2. Oil production is forecast to rise.
3. OPEC does not want to give up on its market share.