Large Investors Place $977 Million in Leveraged Wager Against Rising Oil Prices

Crude Price Bets Go Sour as Oil Traders Get Crushed

A group of oil traders who made a big leveraged bet that crude prices would tumble from their war-driven highs are getting crushed so far. Investors poured $977 million into the ProShares UltraShort Bloomberg Crude Oil ETF (ticker: SCO) in March, a mix of fresh contrarian wagers and traders doubling down on existing positions. This was the fund's largest monthly haul since its 2008 inception.

The ProShares UltraShort Bloomberg Crude Oil ETF delivers twice the inverse of daily crude price moves. Despite the record inflows, the fund's assets stand at just $970 million, below the total fetched for the entire month. This indicates that many of the traders who invested in SCO are facing significant losses.

The fund's performance is a stark contrast to its underlying benchmark index, which climbed 25% in March. Meanwhile, Brent crude at one point in March hit $119 a barrel before slumping to around $102 at the start of April. This is still way above the $72 mark it ended February with.

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The bearish bets are only half the picture. Bullish funds have also drawn record money, with the United States Oil Fund (USO) attracting roughly $700 million in March, its biggest haul since the pandemic, and the United States Brent Oil Fund (BNO) pulling in $600 million, an all-time amount. The result is a sharply divided market, with leveraged money stacked on both sides of a conflict whose trajectory no one can predict.

Analysts say that even a ceasefire may not bail out short traders. The effective closure of the Strait of Hormuz is estimated to have disrupted roughly a fifth of global oil supply, and prices are likely to remain elevated for months as tanker routes reroute and physical markets recalibrate. This means that the short bet requires not just de-escalation but fast normalization, which few expect.

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.

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