Traders piled $1.6 billion into an oil ETF last week — right before prices went negative for the first time in history

AP/Wong Maye-E

Oil’s record slump is burning traders who piled into an energy ETF last week, incorrectly calling a bottom in the commodity price.

Last week, traders put $US1.6 billion into the United States Oil Fund LP, or USO, the best week of inflows on record for the exchange-traded fund since its inception in 2006, Bloomberg reported. On Monday, the ETF declined 11% to the lowest level since 2006 as prices of US West Texas Intermediate crude oil tanked, falling below zero for the first time ever.

Oil prices were weighed down by May contracts expiring Tuesday. In addition, the industry has been hit hard by the coronavirus pandemic, which has cratered demand. Now, there is excess supply and worry that storage will soon run out, sending the contracts into negative territory.

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The USO fund is designed to track the daily price movements of WTI crude oil, offering investors exposure to the commodity without a futures account. The fund composes 25% of all outstanding contracts in WTI crude futures, according to Bloomberg.

Last week, the USO ETF said it will move 20% of its contracts to the second-traded month, citing a supply glut pushing prices down on contracts near their delivery dates, Bloomberg reported.

Other energy ETFs also declined on Monday as the price of oil fell to historic lows. State Street’s Energy Select Sector SPDR Fund, ticker XLE, fell more than 6% Monday. The Vanguard Energy Index Fund, ticker VDE, also fell as much as 6%.

The USO ETF has fallen 67% year-to-date through Friday’s close.

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