Podcast: Ilia Bouchouev on the future of retail investment in oil

Will negative prices and big losses curb retail investors’ appetite for oil futures over the longer term?

Oil trading

Retail investors have become a dominant force in oil futures, building up significant long positions through tracker funds and other instruments such as exchange-traded funds (ETFs). In April, the biggest of these, United States Oil Fund (USO), held between a quarter and a fifth of the May and June West Texas Intermediate (WTI) futures contracts, before it rolled positions further along the curve to stay in line with the CME’s position limits rules. 

In this Energy Risk podcast, Ilia Bouchouev discusses the rise of the retail investor in oil futures and what this means for hedgers. He looks at the extent to which retail investment accentuated the plunge of WTI crude futures into negative territory in April, and whether that episode will curb retail investors’ appetite for buying oil.

In May, Wisdom Tree announced the closure of eight oil tracker funds, while USO’s clearer, RBC Capital, stopped it from taking on additional positions. Bouchouev gives his view on these developments. 

Bouchouev is the managing partner at Pentathlon Investments and an adjunct faculty member at New York University, where he teaches energy trading as part of the Mathematics in Finance Master Program. He is the former president of Koch Global Partners and has written extensively on derivatives and energy markets. A particular area of interest for him in recent years has been the role of speculative players in the oil markets. 


02:46 The history of speculation – from ripe pickings 15 years ago to the contango and losses of the past decade. 

06:18 Has a decade of losses dampened financial investors’ enthusiasm for oil futures?

07:43 When did retail investors start building sizeable positions in oil futures?

09:19 The different motivations of institutional and retail investors.

11:24 How big are retail investors now – what percentage of the market do they hold?

13:46 How was USO able to build up such a large position?

15:40 USO now holds oil in contracts out as far as June 2021. Is this a big departure from its investment objective?

18:30 If speculators move into longer-dated maturities, does this create more liquidity for hedgers?

21:20 A look at what happened on April 20, when prices turned negative.

26.05 What have negative prices meant for retail investors’ appetite for commodity futures?

30:43 If investor products become more sophisticated, should there be more regulation around them?

33:25 What will the closure of the eight Wisdom Tree oil funds and RBC Capital's decision to limit its exposure to USO mean for the market?

36:30 Looking ahead, what impact will retail investment have on oil hedging and the WTI benchmark?

Listen to other podcasts in this series here.

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