Oil: Backwardation to the future

Oil: Backwardation to the future Wisdomtree

Oil futures curves have been in backwardation – when the closer futures contract can be sold for a higher price than it costs to buy a futures contract with a further expiry date, resulting in a profit for the investor – for most of the past year, driven by perceived tightness in short-term supply1. This has provided investors with ‘roll yield’ on top of the gains made from spot price movements in oil.

While we believe that the oil market is balanced at present, there is supply tightness in specific areas – especially in heavier crudes – and this could be enough to ensure that the oil futures curve remains mostly in backwardation going forward. Here’s a closer look at current oil market supply and demand dynamics.

Oil curve backwardation

Recent curve backwardation has largely been engineered by the Organisation of Petroleum Exporting Countries (OPEC). Since January 2017, the oil cartel has restricted the supply of oil by assigning its members and partners a quota for the amount of oil that they produce. Although the cartel has historically had a poor history of complying with quotas, this time it has done exceptionally well. Part of the reason for this, is that up until June 2018, each country was allocated an individual quota (rather than a group-wide limit) and this helped to restrict oil supply.

Another reason OPEC has done well in complying with quotas is because of unintended production disruptions. Recently, Venezuela has experienced an economic implosion, and this has impacted oil production significantly. Supply disruptions in Libya and Nigeria have also contributed to OPEC supply volatility.

Can backwardation last?

In June 2018, OPEC abandoned individual country quotas, so the level of quota compliance that we have seen over the past year may not last if the organisation reverts to its old ways. This could explain why the very front of the Brent futures curve went back into contango – when it costs more to buy the new futures contract than the amount received from selling the old futures contract – in July and August. Indeed, Saudi Arabia – the largest OPEC nation – has clearly expanded production since the end of the country-quota system, as have other countries.

After going back to an all-backwardated curve, the short end of the curve is now back in contango, a move underpinned by fears of over supply from increasing rig count in the US, as well as delays in the full implementation of sanctions on Iran. Despite those recent developments, we do not expect them to significantly impact long term supply. While the front end of the curve will remain prone to shifts, we do not see it to durably get back to a mostly contangoed curves.

Figure 1: Year-on-year difference in OPEC oil production

Source: Bloomberg, WisdomTree, data available as of close 05 October 2018.
Historical performance is not an indication of future performance and any investments may go down in value.

Tightness concentrated in heavy crudes

In relation to supply disruption, supply of the ‘heavier’ crudes is most at risk, in our view. Venezuela, Iran and Canada produce ‘heavy’ (low API gravity), ‘sour’ (high sulphur) crudes and these countries experienced the bulk of supply disruption this year.

Most of the world’s growth in crude oil supply is currently from US tight oil, which is ‘light’ (high API gravity) and ‘sweet’ (low sulphur). So, even though global oil supply is close to balance at the headline level, growth in oil production is uneven, with declines in supply of heavy crudes, and gains in supply of light crudes2.

Moreover, while US tight oil is seeing supply growth, there are limitations to this growth. Infrastructure needs to grow in lock-step with growth in oil production, and infrastructure limitations could slow the pace at which US shale can help satisfy global oil needs.

Demand remains strong for now

Looking at forecasts from the International Energy Agency (IEA), demand for oil looks set to remain healthy, with the IEA expecting oil demand to grow by 1.4 mb/d in 2018, and 1.5 mb/d in 2019 (following 1.5 mb/d growth in 2017). Over the medium term, the dearth of capital investment in oil production is likely to lead to tightness if demand continues to remain robust.

Oil futures likely to remain in backwardation

While we believe that the market is in balance at present, there is supply tightness in specific areas and this could be enough to ensure that the futures curve remains mostly in backwardation.

We don’t believe that a new wave of supply is forthcoming as a lack of investment in oil exploration and production should keep supply contained, and it may only take another supply shock to Libya or to Canada to cast doubts on supply. We also think that demand will remain robust, assuming today’s bullish demand expectations are not unfounded.

Source

1 For a full description of backwardation, contango, roll yields, spot return, total return, excess return and collateral yield please see Costs and Performance Tab on our ETPedia page.

2 Energy Information Administration, WisdomTree, data available as of 04 October 2019.

This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.

Geopolitical risks drove ETP flows last week

Geopolitical risks drove ETP flows last week

ETF Securities Weekly Flows Analysis – Geopolitical risks drove ETP flows last week

Highlights

  • Oil ETP see US$39.5mn outflows as investor take profit on 3.2% rise in oil price.
  • Gold continues to attract inflows in an environment of heightened political risk.
  • ETF investors short Italy in anticipation of a fallout this week.

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Long oil ETP see US$39.5mn outflows as investor take profit on 3.2% rise in oil price. Oil prices have risen to a to a 3½ -year high on the back of the US announcing the re-introduction of sanctions against Iran. Global oil markets have already become tight as a result of outages from Venezuela and strong compliance from the Organization of Petroleum Export Countries (OPEC) with their accord to curb production. Given that the US does not import any Iranian oil and no importing country appears to agree with the US stance, we expect only minimal compliance with the US’s extraterritorial rule. In short the sanctions are unlikely to kill Iranian oil, but the geopolitical premium is likely to linger. Some of the more recent gains are likely to be deflated as other countries increase production. Investors appear to be taking profit as the gains look unsustainable.

Gold continues to attract inflows in an environment of heightened political risk. The political calendar is busy. A meeting between Donald Trump and Kim Jong Un is on the radar for the coming month and there are many risks around the nuclear powers butting heads rather than developing a peace plan. The US’s intervention in Iran is a sign that it is re-establishing its diplomatic presence in the Middle East. Whether that will help or hinder stability in the region is yet unknown. If Iran decides to pull out of the agreement (Joint Comprehensive Plan of Action) itself, we believe the region could transcend into chaos and the proxy-war between Saudi Arabia and Iran will escalate. Long gold ETPs received US$16.7mn in inflows, while closely correlated silver ETPs received US$3.1mn.

Short FTSE MIB equities attracted its largest inflows since June 2017 as investors fear the coalition of anti-establishment parties in Italy. Short FTSE MIB ETPs gained US$3.6mn while long FTSE MIB saw US$4.5mn of outflows. There had been surprisingly little reaction from bond and equity markets surrounding the deadline set for yesterday around the forming of a coalition. We believe ETP investors have positioned for a fallout this week.

Investors appear split over aluminium’s direction. Long aluminium ETPs received US$1.9mn – largest weekly inflows since February 2018 – while short aluminium ETPs received US$1.1mn – largest weekly inflows since May 2016. Although prices have come off their highs reached last month when the US sanctions against a major shareholder of a Russian miner were announced, prices are likely to rise as these sanctions (and trade restrictions against China) come into effect.

Investors become more bullish the euro vis-à-vis the US dollar. Last week, investors bought US$9.7mn of long EUR short USD ETPs, and sold $8.3mn of long USD short EUR ETPs. Investors appear unconvinced that US dollar’s recent moderate appreciation can be sustained. Although with economic data continuing to weaken in Europe and little indication that the Federal Reserve will be deterred from raising rates another couple of times this year, we think that there is potential for rate differentials to drive the US dollar higher.

For more information contact:

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0)207 448 4330
E research@etfsecurities.com

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Gold, Oil, and Inflation in 2018

Gold, Oil, and Inflation in 2018

Investment Insights December 2017  Gold, Oil, and Inflation in 2018

Summary

  • Gold may remain flat for 2018 but remains an attractive tool to hedge against potential market volatility and geopolitical risks.
  • Oil prices may weaken due to rising US production despite falling global inventories and elevated political risk premia.
  • Inflation may persistently rise throughout 2018.

Macro Outlook

The world is currently experiencing synchronous growth supported by massive central bank stimulus. There are, however, indications that developed markets are likely close to their cycle highs, and a period of slower growth potentially lies ahead. While we think that the world economy will escape a significant upset in 2018, there remain formidable tail risks.

Navigating the stretched valuations in both equity and bond markets and the potential pitfalls of low volatility will be a critical objective for investors in 2018. The unwinding of monetary policy brings risks to both bonds and equities, likely renewing appetite for alternative assets classes such as commodities, real assets, and precious metals.

Earnings may face headwinds from tighter US monetary policy and wage growth. As the US jobs market continues to tighten in 2018, wage pressures may rise significantly and reinforce inflation momentum due to the need for businesses to increase prices.

The US central bank may continue to raise rates in 2018. That comes on top of the balance-sheet run-off that the Federal Reserve (Fed) has already announced. Although some market participants think that under a new Chair, the Fed will may become more dovish, we believe the central bank will remain data-dependent and trained staff economists’ analysis will become more influential in the Board’s decision-making. In light of strengthening domestic demand and a tight labor market, the inflationary potential will be hard to ignore.

Another potential consequence of tighter US policy is the negative impact on emerging market economic growth, and in particular China. Higher borrowing, input costs and currency volatility may weigh on emerging market growth.

Gold Outlook

Our base case fair-value for gold is broadly flat over the coming year, as support from rising inflation will counter the downward pressure from rising interest rates. Despite policy interest rates rising in 2017, the US dollar has depreciated and treasury yields have declined. We expect these paradoxical trends to abate in 2018, and thus weigh on gold prices. However, we believe three rate hikes in 2018 will be required to keep inflation expectations anchored.

Exhibit 1: 2018 gold price outlook scenarios

Most of the variation of the gold price in our bull and bear cases (compared to our base case) comes from assumptions around speculative positioning. Many measures of market volatility are currently subdued. However, several risks – both political and financial – exist. Sentiment towards gold could shift quite widely depending on which of these views dominate market psyche.

Risks which may push demand for gold futures higher benefiting prices include continued sabre-rattling from North Korea; tensions between Saudi Arabia and Iran escalate; a disorderly unwind of credit in China; political populism and elections in Europe; and a spike in market volatility as yield-trades unwind.

Currently investor positioning is elevated due to investor fears around continued sabre-rattling between US/Japan and North Korea and some of the tensions in the Middle East. These concerns could fall away if new developments on these geopolitical issues do not resurface. We have observed that when such geopolitical issues simmer in the background, political risk-premia tends to dissipate from the price of gold. It requires keeping the issues at the forefront of market psyche for the premia to endure.

Oil Outlook

Many market commentators argued a year ago that OPEC’s strategy was to flip the oil futures curve from contango to backwardation. Contango, they argued, provided the incentive for US shale producers to keep pumping out oil despite depressed spot prices because prices for future delivery were higher and so they could store oil today and lock into higher prices at a future date. Contango therefore would see continuous increases in inventory. The futures curve is now in backwardation.

Inventories have been declining across the OECD (Organization for Economic Co-operation and Development). Most of the declines have come from floating storage (which is the most expensive form of storage).We are unlikely to see the decline in inventories continue however. At current prices, US production will likely expand substantially. US shale oil production can break-even at close to US$40/barrel (bbl). With WTI (West Texas Intermediate) oil currently trading at US$55/bbl, there is plenty of headroom for profitability and we expect a strong expansion in supply.

In 2018, US production may hit an all-time high, surpassing the cycle peak reached before the price war in 2014 and above the 10 million barrel mark last hit in 1970. There is little indication that the backwardation in futures curves is going to stop US production from expanding.

Exhibit 2: Oil supply and demand outlook

In October 2017, OPEC (Organization of the Petroleum Exporting Countries) and its 10 non-OPEC partners posted their best level of compliance with the production curb deal to date. However, looking at the detail, it is countries like Iraq who managed to step-up the most to improve compliance. Iraq’s compliance levels jumped from 22% in September to 85% in October, making a strong contribution to the rise in OPEC’s overall compliance (95% in September to 106% in October).

That is unlikely to be repeated given that the supply disruptions stemming from the Kurdish region’s vote for independence was the driver. We doubt the threat to cut off oil production from the Kurdish region is credible. Turkey, the main buyer of the oil has not followed through with threats to shut-down pipelines that take oil out of the region.

OPEC and its non-OPEC partners announced on November 30th, that they will extend the deal to cut supply from October 2016 by 1.8 million barrels to the end of 2018. We think that compliance in this extended deal will fall short of expectations. Russia’s insistence on discussing an exit strategy and having a review in June 2018 indicates that the patience of non-OPEC partners in the deal is wearing thin.With the US expanding supply and OPEC likely to under deliver on its promise to consistently curb production, we expect the supply to grow. At the same time, demand is unlikely to continue to grow at the current pace, with prices having gained 33% over the past year. Q4 2017 may be the last quarter of deficit for a while. Surpluses are going to contribute to higher OECD inventories.

The Crown Prince of Saudi Arabia, Mohammed bin Salman, in his drive to modernize the Saudi economy, has taken aim at corruption in the country. With many of the economic and political elite having been caught up in the investigation, there is a risk that the fragile consensus that held the Saudi state together for many decades could unravel. Saudi Arabia has accused Iran and Lebanon of committing acts of war. Saudi Arabia initiated a military intervention in Yemen in 2015 that has been seen as a ‘proxy war’ with Iran given Iran’s support for rebel Houthis that had toppled Yemen’s former government. Recent developments show that this proxy war is escalating.

The market perceives both the internal and external conflicts in Saudi Arabia as a source of disruption in oil production in the region. We believe that the geopolitical premium priced into oil is likely to be transient unless a war actually breaks out. The Saudi proxy war with Iran has been raging for over two years, with little reflection in the price of oil until recently. Unless investors are constantly reminded of the risks, the premia tends to evaporate within a matter of weeks.

Inflation Outlook

Inflation has been subdued in 2017, despite many signs of cyclical strength, but a large number of idiosyncratic factors account for this apparent weakness in price movements. Dominant wireless phone service providers changing pricing; solar eclipse changing the timing of hotel stays; severe hurricane disruptions; budget airlines opening new routes are some of the idiosyncratic factors that are unlikely to be repeated.

Additionally, the calculation of owner occupied equivalent rent has caused some distortions in the inflation numbers, as it is sensitive to energy prices. With volatility in energy prices having fallen, we expect these distortions to subside. The unemployment rate is at its lowest in 16 years and a healthy number of jobs are being added every month (notwithstanding hurricane disruptions). The strength in the labor market may show up in inflation as per its traditional relationship.We expect US inflation to rise to 2.4% in June 2018 and 2.6% by December 2018 (from 2.2% in September 2017). These levels will likely be uncomfortably high for the Fed, but given the lags in policy and price response, there is little the Fed can do next year to stop it (the inflationary pressure has been built up this year).

Important Risks

The statements and opinions expressed are those of the author and are as of the date of this report. All information is historical and not indicative of future results and subject to change. Reader should not assume that an investment in any securities and/or precious metals mentioned was or would be profitable in the future. This information is not a recommendation to buy or sell. Past performance does not guarantee future results. Risk premia is the difference between the expected return on a security or portfolio and the ”riskless rate of interest” (the certain return on a riskless security.

Diversification does not eliminate the risk of experiencing investment losses. All investing involves risk, including the loss of principal.

The Organisation for Economic Co-operation and Development (OECD) is an intergovernmental economic organisation with 35 member countries, founded in 1960 to stimulate economic progress and world trade. Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization of 14 nations as of May 2017, founded in 1960 in Baghdad by the first five members, and headquartered since 1965 in Vienna.

The Federal Reserve System, often referred to as the Federal Reserve or simply ”the Fed,” is the central bank of the United States. It was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. Backwardation is a theory developed in respect to the price of a futures contract and the contract’s time to expire; as the contract approaches expiration, the futures contract trades at a higher price compared to when the contract was further away from expiration. Contango is a situation where the futures price of a commodity is above the expected future spot price.

Maxwell Gold is a registered representative of ALPS Distributors, Inc.

ALPS Distributors, Inc.

Green means go for industrial metals

Green means go for industrial metals

ETF Securities Weekly Flows Analysis – Green means go for industrial metals

Highlights

  • Industrial metal ETPs recorded the largest weekly inflows since summer 2014.
  • Robotic ETP continues to record inflows on better-than-expected earnings seasons
  • Gold and oil ETPs recorded outflows as price continue to rise.
  • Inflows into silver ETPs, benefitting from the attractiveness of industrially based metals.

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Industrial metal ETPs recorded the largest weekly inflows since summer 2014. Industrial metal ETPs were on the top of the leader board last week with a record inflow of US$112.9mn, the largest weekly inflow since August 2014. Investors increased their exposure to the basket and copper with US$77.3mn and US$34.5mn inflows, respectively. Nickel was the best performer last week with a price rise of 4%, followed by copper (3.3%) as both metal supply deficits were reported higher than last year according to their respective international study groups. Beyond the supply deficit, investors have been more sensitive to climate change with the latest Global Carbon Project report highlighting that carbon emissions will increase by 2% this year which makes the 1.5°C global target cap unlikely. We believe more investment into green projects, renewable energy and electric vehicles is very likely. This could be the beginning of a long-term trend that will benefit copper, nickel and other base metals.

Robotic ETP continues to see inflows on a better-than-expected earnings season. Last week saw US$49mn inflow into the robotic ETP, bringing the fund’s asset under management above US$1bn. 92% of the constituents of the Robotic index have reported earnings as of last week among which 62% are beating expectations, representing an earnings beat margin of 12%. The Robotic index price-to-earnings ratio is currently 29.8x above its historical average. However, the index continues to trade at a discount to the MSCI World IT index.

Gold and oil ETPs recorded outflows on profit-taking as prices continue to rise against market expectations. Last week saw oil and gold ETPs recording outflows of US$21mn and US$31mn, respectively as oil prices reached new highs. Meanwhile, the gold price closes in on the US$1,300/oz. mark, despite some potential downward pressure ahead of the Fed December rate hike. Despite US oil production now being above its 2015 peak, WTI rallied by 4.2% last week, potentially on larger-than-expected decline in US oil inventories, while Brent rose by 1.8%, reducing its premium to WTI to US$4.9/bbl. Brent prices underperformed as Saudi Arabia exports increased in November compared to the September and estimated October levels, despite cuts in oil allocations of 560,000 barrels per day in November. Long WTI ETPs saw US$14.5mn outflows while US$5.9mn were withdrawn from long Brent ETPs.

Silver ETPs recorded the largest weekly inflows since September, benefitting from the attractiveness of industrial metals. Around 8% of silver consumption is used in the making of photovoltaic cells. This share is likely to increase in the next decade as the world makes the transition to a low-carbon economy. Silver, among other base metals, is likely to benefit from the demand boost. Last week saw US$8.6mn into silver ETPs despite little movement in price.

Video Presentation

Edith Southammakosane, Research Analyst at ETF Securities provides an analysis of last week’s performance, flow and trading activity in commodity exchange traded products and a look at the week ahead.

For more information contact

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com

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Other than as set out above investors may contact ETFS UK at +44 (0)20 7448 4330 or at info@etfsecurities.com to obtain copies of prospectuses and related regulatory documentation, including annual reports. Other than as separately indicated, this communication is being made on a ”private placement” basis and is intended solely for the professional / institutional recipient to which it is delivered.

Securities issued by the Issuers are direct, limited recourse obligations of the relevant Issuer alone and are not obligations of or guaranteed by any of UBS AG (”UBS”), Merrill Lynch Commodities Inc. (”MLCI”), Merrill Lynch International (”MLI”), Bank of America Corporation (”BAC”), Bloomberg Finance LP (”Bloomberg”), Société Générale (”SG ”), Shell Trading Switzerland, Shell Treasury, HSBC Bank plc, JP Morgan Chase Bank, N.A., Morgan Stanley & Co International plc, Morgan Stanley & Co. Incorporated or any of their affiliates or anyone else or any of their affiliates. Each of UBS, MLCI, MLI, BAC, Bloomberg, SG, Shell Trading Switzerland, Shell Treasury, HSBC Bank plc, JP Morgan Chase Bank, N.A., Morgan Stanley & Co International plc and Morgan Stanley & Co. Incorporated disclaims all and any liability whether arising in tort, contract or otherwise (save as referred to above) which it might have in respect of this communication or its contents otherwise arising in connection herewith.

Funds

Austria: Investors should base their investment decision only on the relevant prospectus of the Company, the Key Investor Information Document, any supplements or addenda thereto, the latest annual reports and semi-annual reports and the memorandum of incorporation and the articles of association, which can be obtained free of charge upon request at the Paying and Information Agent in Austria, Erste Bank der oesterreichischen Sparkassen AG, Graben 21, A1010 Wien, Österreich and on www.etfsecurities.com.

France: Any subscription for shares of the Funds will be made on the basis of the terms of the prospectus, the simplified prospectus and any supplements or addenda thereto. The Company is a UCITS governed by Irish legislation and approved by the Financial Regulator as UCITS compliant with European regulations although may not have to comply with the same rules as those applicable to a similar product approved in France. Certain of the Funds have been registered for marketing in France by the Authority Financial Markets (Autorité des Marchés Financiers) and may be distributed to investors in France. Copies of all documents (i.e. the prospectus (including any supplements or addenda thereto, the Key Investor Information Document, the latest annual reports and the memorandum of incorporation and articles of association) are available in France, free of charge, at the French Centralizing Agent, Société Générale, Securities Services, at 1-5 rue du Débarcadère, 92700 Colombes – France. Germany: The offering of the Shares of the Fund has been notified to the German Financial Services Supervisory Authority (BaFin) in accordance with section 310 of the German Investment Code (KAGB). Copies of all documents (i.e. the Key Investor Information Document (in the German language), the prospectus, any supplements or addenda thereto, the latest annual reports and semi-annual reports and the memorandum of incorporation and the articles of association) can be obtained free of charge upon request at the Paying and Information Agent in Germany, HSBC Trinkaus & Burkhardt AG, Königsallee 21-23, 40212 Düsseldorf and on www.etfsecurities.com. The current offering and redemption prices as well as the net asset value and possible notifications of the investors can also be requested free of charge at the same address. In Germany the Shares will be settled as co-owner shares in a Global Bearer certificate issued by Clearstream Banking AG. This type of settlement only occurs in Germany because there is no direct link between the English and German clearing and settlement systems CREST and Clearstream. For this reason the ISIN used for trading of the Shares in Germany differs from the ISIN used in other countries.

Netherlands: Each Fund has been registered with the Netherlands Authority for the Financial Markets following the UCITS passport-procedure pursuant to section 2:72 of the Dutch Financial Supervision Act.

United Kingdom: Each Fund is a recognised scheme under section 264 of the Financial Services and Markets Act 2000 and so the prospectus may be distributed to investors in the United Kingdom. Copies of all documents (i.e. the Key Investor Information Document, the prospectus, any supplements or addenda thereto, the latest annual reports and semi-annual reports and the memorandum of incorporation and the articles of association) are available in the United Kingdom from www.etfsecurities.com.

None of the index providers of the Funds referred to herein nor their licensors make any warranty or representation whatsoever either as to the results obtained from use of the relevant indices and/or the figures at which such indices stand at any particular day or otherwise. None of the index providers shall be liable to any person for any errors or significant delays in the relevant indices nor shall be under any obligation to advise any person of any error or significant delay therein.

 

Oil ETP outflows reach 11-month high as investors take profit

Oil ETP outflows reach 11-month high as investors take profit

ETF Securities Weekly Flows Analysis – Oil ETP outflows reach 11-month high as investors take profit

Highlights

  • Crude oil ETPs saw largest outflow since December 2016 as investors took profit.
  • Third consecutive week of inflows in gold ETPs, totalling US$181mn over the period.
  • Largest weekly inflows into robotic themed ETFs see since their inception.
  • Agricultural ETPs saw largest outflows since July 2017.

Download the complete report (.pdf)

Crude oil ETPs saw largest outflow in since December 2016 as investors took profit on further price gains. Brent crude prices lurched 2.3% higher last week as a geopolitical premium became priced-in to the oil benchmark. Outflows of US$109.1mn last week was the tenth consecutive week of withdrawals from ETPs and marked the highest since May. We believe that unless the geopolitical tensions remain on top of investor list of concerns, the geopolitical premium will dissipate. Last week Saudi Arabia’s internal fight against corruption, implicating a large number of the political and financial elite, and its external proxy war with Iran escalated. That has led to market fears about a potential disruption to supply. However, as we have observed in the past, unless these risks are crystallised (or new developments keep the issues at the forefront rather than simmering in the background), the geopolitical premium tends to fade away.

Third consecutive week of inflows in gold ETPs, totalling US$181mn over the period. Inflows into gold ETPs continued last week to the tune of US$111mn. Gold prices gained 0.4% in light of the elevated geopolitical tension in the Middle East. Furthermore US President Trump’s comments during his trip to Asia has stoked concerns about a military confrontation with North Korea. The sabre-rattling that looked like it had calmed down over the past month is resurfacing. The outflows from gold ETPs that took place in Q3 2017, appear to be reversing as investors recognise that at current prices gold provides a relatively cheap hedge to rising risks of a disruption to cyclical asset performance. In our base case scenario, we think the downside risks to gold prices are fairly limited, however, a shock event could take gold prices higher, making it an attractive insurance asset.

Largest weekly inflows into robotic themed ETFs see since their inception. Last week’s inflows of US$39.8mn marked the largest weekly inflows. After close to 60% of companies in the sector having reported Q3 net income, close to 65% have beat analyst estimates. Investors are increasingly enthusiastic about the role of robotics in the modern world and have identified an investment opportunity in the companies that enable the deployment of this technology.

Agricultural ETPs saw largest outflows since July 2017. A total of US$16.3mn of outflows were seen from long agricultural ETPs, despite a US$2.5mn inflow into long coffee ETPs. Outflows were concentrated in the broad baskets due to price weakness (US$9.5mn). However, there was also profit-taking of US$8.8mn in cocoa ETPs after a 7.5% rally in prices last week. Cocoa prices had been depressed until mid- August due to a bumper crop. However, due to excessive rain the spread of crop diseases like black pod and brown rot has increased, damaging the prospect for future crops and thus has lifted the price.

For more information contact

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com

Important Information

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This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the ”FCA”).

This communication is only targeted at qualified or professional investors.

The products discussed in this communication are issued by ETFS Commodity Securities Limited (”CSL”), ETFS Hedged Commodity Securities Limited (”HCSL”), ETFS Hedged Metal Securities Limited (”HMSL”), Swiss Commodity Securities Limited (”SCSL”), ETFS Foreign Exchange Limited (”FXL”), ETFS Metal Securities Limited (”MSL”), ETFS Oil Securities Limited (”OSL”), ETFS Equity Securities Limited (”ESL”), Gold Bullion Securities Limited (”GBS” and, together with CSL, HCSL, HMSL, SCSL, FXL, MSL, OSL and ESL, the ”Issuers”) and GO UCITS ETF Solutions Plc (the ”Company ”). Each Issuer (apart from SCSL) is regulated by the Jersey Financial Services Commission. The Company is an open-ended investment company with variable capital having segregated liability between its sub-funds (each a ”Fund”) and is organised under the laws of Ireland. The Company is regulated, and has been authorised as a UCITS by the Central Bank of Ireland (the ”Financial Regulator”) pursuant to the European Communities (Undertaking for Collective Investment in Transferable Securities) Regulations, 2003 (as amended).

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Issuers

General: The FCA has delivered to the regulators listed below certificates of approval attesting that the prospectuses of the Issuers indicated have been drawn up in accordance with Directive 2003/71/EC.

For Dutch, French, German and Italian Investors: The prospectuses (and any supplements thereto) for each of the Issuers (apart from SCSL) have been passported from the United Kingdom into France, Germany, Italy and the Netherlands and have been filed with the l’Autorité des Marchés Financiers (AMF) in France, Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) in Germany, CONSOB and the Bank of Italy in Italy and the Authority Financial Markets (Autoriteit Financiële Markten) in the Netherlands. Copies of prospectuses (and any supplements thereto) and related regulatory documentation, including annual reports, can be obtained in France from HSBC France, 103, Avenue des Champs Elysées, 75008 Paris, in Germany from HSBC Trinkhaus & Burkhardt, AG, Konsortialgeschäft, Königsalle 21/23, 40212 Dusseldorf and in the Netherlands from Fortis Bank (Nederland) N.V., Rokin 55, 1012 KK Amsterdam. The prospectuses (and any supplements thereto) for each of the Issuers (apart from SCSL) may be distributed to investors in France, Germany, Italy and the Netherlands.

This communication is not a financial analysis pursuant to Section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG) and consequently does not meet all legal requirements to warrant the objectivity of a financial analysis and is also not subject to the ban on trading prior to the publication of a financial analysis.

This communication is not addressed to or intended directly or indirectly, to (a) any persons who do not qualify as qualified investors (gekwalificeerde beleggers) within the meaning of section 1:1 of the Dutch Financial Supervision Act as amended from time to time; and/or (b) in circumstances where other exemptions or dispensations from the prohibition the Dutch Financial Supervision Act or the Exemption Regulation of the Act on Financial Supervision apply.

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For Swiss investors: The prospectus (and any supplements thereto) for SCSL may be distributed to investors in Switzerland. Securities in SCSL are not shares or units in collective investment schemes within the meaning of CISA. They have not been approved by the Swiss Financial Market Supervisory Authority (FINMA) and are not subject to its supervision. The Swiss Franc Currency-Hedged Commodity Securities are not issued or guaranteed by a supervised financial intermediary within the meaning of CISA.

This document does not constitute a prospectus under the Companies (Jersey) Law 1991 and is not an offer or an invitation to acquire securities in SCSL. This document does not constitute a Swiss listing prospectus under the SIX Listing Rules and the SIX Additional Rules for the listing of Exchange Traded Products. This document must be read in conjunction with the Swiss Listing Prospectus. If there is any inconsistency between this document and the Swiss Listing Prospectus, the Swiss Listing Prospectus shall prevail. Detailed information on the terms and conditions of the Swiss Franc Currency-Hedged Commodity Securities can be found in the Swiss Listing Prospectus under Part 6 – Trust Instrument and Swiss Franc Currency-Hedged Commodity Securities.

Other than as set out above investors may contact ETFS UK at +44 (0)20 7448 4330 or at info@etfsecurities.com to obtain copies of prospectuses and related regulatory documentation, including annual reports. Other than as separately indicated, this communication is being made on a ”private placement” basis and is intended solely for the professional / institutional recipient to which it is delivered.

Securities issued by the Issuers are direct, limited recourse obligations of the relevant Issuer alone and are not obligations of or guaranteed by any of UBS AG (”UBS”), Merrill Lynch Commodities Inc. (”MLCI”), Merrill Lynch International (”MLI”), Bank of America Corporation (”BAC”), Bloomberg Finance LP (”Bloomberg”), Société Générale (”SG ”), Shell Trading Switzerland, Shell Treasury, HSBC Bank plc, JP Morgan Chase Bank, N.A., Morgan Stanley & Co International plc, Morgan Stanley & Co. Incorporated or any of their affiliates or anyone else or any of their affiliates. Each of UBS, MLCI, MLI, BAC, Bloomberg, SG, Shell Trading Switzerland, Shell Treasury, HSBC Bank plc, JP Morgan Chase Bank, N.A., Morgan Stanley & Co International plc and Morgan Stanley & Co. Incorporated disclaims all and any liability whether arising in tort, contract or otherwise (save as referred to above) which it might have in respect of this communication or its contents otherwise arising in connection herewith.

Funds

Austria: Investors should base their investment decision only on the relevant prospectus of the Company, the Key Investor Information Document, any supplements or addenda thereto, the latest annual reports and semi-annual reports and the memorandum of incorporation and the articles of association, which can be obtained free of charge upon request at the Paying and Information Agent in Austria, Erste Bank der oesterreichischen Sparkassen AG, Graben 21, A1010 Wien, Österreich and on www.etfsecurities.com.

France: Any subscription for shares of the Funds will be made on the basis of the terms of the prospectus, the simplified prospectus and any supplements or addenda thereto. The Company is a UCITS governed by Irish legislation and approved by the Financial Regulator as UCITS compliant with European regulations although may not have to comply with the same rules as those applicable to a similar product approved in France. Certain of the Funds have been registered for marketing in France by the Authority Financial Markets (Autorité des Marchés Financiers) and may be distributed to investors in France. Copies of all documents (i.e. the prospectus (including any supplements or addenda thereto, the Key Investor Information Document, the latest annual reports and the memorandum of incorporation and articles of association) are available in France, free of charge, at the French Centralizing Agent, Société Générale, Securities Services, at 1-5 rue du Débarcadère, 92700 Colombes – France. Germany: The offering of the Shares of the Fund has been notified to the German Financial Services Supervisory Authority (BaFin) in accordance with section 310 of the German Investment Code (KAGB). Copies of all documents (i.e. the Key Investor Information Document (in the German language), the prospectus, any supplements or addenda thereto, the latest annual reports and semi-annual reports and the memorandum of incorporation and the articles of association) can be obtained free of charge upon request at the Paying and Information Agent in Germany, HSBC Trinkaus & Burkhardt AG, Königsallee 21-23, 40212 Düsseldorf and on www.etfsecurities.com. The current offering and redemption prices as well as the net asset value and possible notifications of the investors can also be requested free of charge at the same address. In Germany the Shares will be settled as co-owner shares in a Global Bearer certificate issued by Clearstream Banking AG. This type of settlement only occurs in Germany because there is no direct link between the English and German clearing and settlement systems CREST and Clearstream. For this reason the ISIN used for trading of the Shares in Germany differs from the ISIN used in other countries.

Netherlands: Each Fund has been registered with the Netherlands Authority for the Financial Markets following the UCITS passport-procedure pursuant to section 2:72 of the Dutch Financial Supervision Act.

United Kingdom: Each Fund is a recognised scheme under section 264 of the Financial Services and Markets Act 2000 and so the prospectus may be distributed to investors in the United Kingdom. Copies of all documents (i.e. the Key Investor Information Document, the prospectus, any supplements or addenda thereto, the latest annual reports and semi-annual reports and the memorandum of incorporation and the articles of association) are available in the United Kingdom from www.etfsecurities.com.

None of the index providers of the Funds referred to herein nor their licensors make any warranty or representation whatsoever either as to the results obtained from use of the relevant indices and/or the figures at which such indices stand at any particular day or otherwise. None of the index providers shall be liable to any person for any errors or significant delays in the relevant indices nor shall be under any obligation to advise any person of any error or significant delay therein.