US Oil Fund Records Biggest Ever Single-Day Outflow Amid Geopolitical Tensions

The US Oil Fund (USO) saw a record $376M outflow as Iran-Israel tensions eased, highlighting oil markets' sensitivity to geopolitical events and the complex interplay of supply, demand, and sentiment.

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US Oil Fund Records Biggest Ever Single-Day Outflow Amid Geopolitical Tensions

US Oil Fund Records Biggest Ever Single-Day Outflow Amid Geopolitical Tensions

The US Oil Fund (USO), the largest oil exchange-traded fund (ETF), experienced its most significant daily withdrawal in history on April 24, 2024, with $376 million exiting the fund. This massive outflow surpassed the previous record of $323 million set in 2009, following a period of heightened geopolitical tensions between Iran and Israel.

The sell-off was attributed to a de-escalation of immediate tensions in the Middle East, suggesting it was an event-driven reaction by investors. John Love, CEO of USCF Investments, which manages USO, stated that the outflow was due to a "general easing of immediate tension in the Middle East," indicating a market-driven sell-off following the de-escalation of immediate risks.

Despite the volatile backdrop, including Iran's missile and drone attack on Israel and subsequent retaliatory strikes, the market's response suggests a growing resilience or desensitization to geopolitical escalations. The oil options market has indicated a significant unwinding of the geopolitical risk premium previously factored into prices due to the conflict between Iran and Israel.

Why this matters: The record outflow from the US Oil Fund highlights the sensitivity of oil markets to geopolitical events and the potential for rapid shifts in investor sentiment. The de-escalation of tensions between Iran and Israel has led to a noticeable decrease in oil prices, underscoring the complex interplay of geopolitical risks and market dynamics in the global oil market.

The oil market has been supported this year by supply restrictions from OPEC+ members, including major producers like Saudi Arabia and Russia, as well as geopolitical risks in the Middle East and Russia. However, the drawdown in US crude inventories by 6 million barrels last week did not bolster prices as expected, reflecting the complex interplay of supply dynamics and broader market sentiment influencing oil prices. As of April 24, 2024, Brent crude oil prices hovered near $87 a barrel, reflecting reduced fears of an escalation into a broader regional conflict.

Key Takeaways

  • US Oil Fund (USO) saw record $376M outflow on April 24, 2024.
  • Outflow attributed to easing of Iran-Israel tensions, reducing geopolitical risk premium.
  • Oil market resilient to geopolitical escalations, indicating desensitization.
  • Brent crude prices hovered near $87/barrel, reflecting reduced conflict fears.
  • Oil prices not bolstered by inventory drawdown, reflecting complex market dynamics.