Cold U.S. weather encourages inflows into energy ETPs in February

Tue Mar 11, 2014 7:28am EDT

Related Topics

* Energy futures ETPs attract $298 mln in Feb
    * Total commodity inflows at $1.2 bln after price rally
    * Agriculture segment back in favour on weather, Ukraine

    By Claire Milhench
    LONDON, March 11 (Reuters) - Extremely cold temperatures in
North America encouraged investors to put almost $300 million
into energy futures exchange traded products (ETPs) in February,
as they sought to capitalise on strong demand for natural gas
and U.S. crude.
    Another $1.6 billion was invested in energy equity ETPs,
according to the latest global data from BlackRock, the world's
biggest asset manager. ETPs, whose value is linked to moves in
their underlying assets, offer an easy route into commodities
for investors.
    The inflows are a turnaround from January's $202 million net
outflows from the energy sector, and reflect a strong rally in
natural gas in mid-February as North America's cold spell
continued, as well as a 5 percent rise in U.S. crude. The
S&P GSCI Energy index ended the month up 3.7 percent.
    "We saw very strong inflows into long natural gas on the
back of the continued freezing weather in the U.S. and the
expectation of further price increases," said Nick Brooks, head
of research and investment strategy at ETF Securities, an issuer
of ETPs.
    Refiners' consumption of crude also increased as they tried
to meet demand for heating oil, reducing inventories at Cushing,
Oklahoma to a four-month low. 
    Interest in commodity ETPs improved in February due to
better price performance, with the S&P GSCI up 4.5 percent. But
volumes remained modest, with $149 million invested in broad
commodity ETPs and $1.2 billion in commodity ETPs in total. 
    Asset allocators preferred developed equity ETPs over
commodities, with Japan and pan-European equity ETPs particular
favourites, said Dodd Kittsley, head of ETP research at
BlackRock.
    "Flows into commodity ETPs have been largely driven and
supported by gold inflows in February," he said. "As the price
of gold rebounded, gold ETPs gathered $0.5 billion, a reversal
from 13 consecutive months of outflows since January 2013." 
    The S&P GSCI Gold index was up 6.6 percent in February and
is up 9.9 percent in the year to date. Kittsley thought that
support for safe haven assets would persist as long as investors
expected interest rates to remain low and geopolitical tension
between Russia and Ukraine to continue. 
    
    GRAIN EXPORTS 
    The best performing sector in February was agriculture, up
9.3 percent, S&P GSCI said. The poor weather and the crisis in
Ukraine - a major wheat and corn exporter - prompted a revival
of investor interest, with $49 million of inflows. "There are
concerns about a potential disruption to Ukrainian exports,"
said Brooks. 
    Ole Hansen, head of commodity strategy at Saxo Bank, said
that adverse weather in Brazil and the United States had
supported coffee, sugar and soybeans. He noted a 40 percent
rally in Arabica coffee and a 13 percent rise in sugar
due to an extreme drought in Brazil. 
    These very strong price moves attracted tactical investors.
"In the U.S., the cold weather lifted the price of wheat after
concerns that the winter crop could be damaged," he added. 
    Inflows into long wheat products on the ETF Securities
platform have continued into March, Brooks said, whilst
palladium is attracting interest due to the possibility of
restrictions on Russian exports. 
    But despite the improved price performance in commodities,
many investors remain on the sidelines following a run of poor
macroeconomic data. 
    "Part of the problem is that in the first two months of the
year the data from the U.S. was highly distorted by the cold
weather," Brooks said. "Investors entered the year very bullish
but then we got this bad data, and a lot of them are confused
and waiting for clarity."
    At the end of February, BlackRock's data covered 900
commodity ETPs worldwide, worth some $122.9 billion.
    
    Global commodities ETPs at end-February (US$ mln)  
 SECTOR                    FEB FLOWS   FEB ASSETS
 Broad/Diversified         149         17,206
 Agriculture               49          5,250
 Energy                    298         7,383
 Industrial Metals         -29         1,920
 Gold                      501         73,995
 Silver                    200         12,493
 Precious Metals Total     693         91,180
 TOTAL COMMODITIES         1,159       122,940
 Source: BlackRock
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