Stay informed with free updates
Simply sign up to the Oil myFT Digest — delivered directly to your inbox.
Retail traders are piling into bets on oil prices, drawn by a wildly volatile rally in global energy markets sparked by the Iran war.
Flows from small investors into the United States Oil Fund — an exchange traded fund tracking US oil futures known by its USO ticker — reached a record $115m over the past five trading days, according to figures from VandaTrack. Activity in options linked to USO, typically another hallmark of retail involvement, surged to its highest-ever level this week, Bloomberg data shows.
Options activity has also surged to four-year highs in UCO, ProShares’ crude oil ETF that uses leverage to magnify investors’ gains or losses, suggesting rising retail demand.
The cash flooding into these products demonstrates the oil market’s role as retail traders’ latest playground, drawing comparisons to periodic flare-ups in so-called “meme” stocks and a rush into precious metals earlier this year. But it also highlights individual investors’ appetite for risk in a market facing record price swings — and one where they were badly burned during a previous retail frenzy in 2020 when oil prices plunged into negative territory.
“Long oil may be emerging as the next ‘meme theme’ for retail investors,” said Viraj Patel, Vanda’s deputy head of research, who last week flagged “early signs of a mini-retail bubble forming”.
Crude prices have rocketed since the US and Israel launched strikes against Iran two weeks ago, all but halting energy flows through the pivotal Strait of Hormuz as the conflict escalated.
West Texas Intermediate, the US benchmark, surged to nearly $120 a barrel on Monday from $67 before war broke out. It tumbled again after President Donald Trump hinted the war would be short but remains close to $100 and highly volatile, as Iran continues to hit shipping in the strait.
With traditional exchanges closed over the weekend, traders rushed to crypto-based exchange Hyperliquid to place leveraged bets on tokenised oil futures as the US and Israel launched their initial attacks on February 28.
Trading activity has intensified as the war has dragged on, with daily volume in a popular Hyperliquid oil contract rising close to $1bn on Friday from around $20mn two weeks before.
Prediction markets Polymarket and Kalshi offer dozens of distinct event contracts on where oil might trade over coming days and months. A Polymarket contract on where crude will be trading at the end of March has attracted $31mn in bets.
Funds such as USO, which buys futures contracts linked to the oil price, also provide a speculative vehicle for investors who are never likely to get their hands on a barrel of crude.
“I am locking in on USO right now,” one TikTok user said on Thursday, in a break from their usual posts offering relationship advice. “I’m not betting the farm on it, right . . . but this is a way to hedge my portfolio to diversify the risk-return matrix.”
The retail dollars flowing into the $2.7bn fund — the biggest ETF in the oil market — this week surpassed a previous peak during the early stages of the pandemic, when a Covid-induced slump in demand briefly pulled WTI prices below zero. The fund ultimately collapsed by 68 per cent over 2020, handing investors heavy losses and prompting regulatory scrutiny over whether its risks were accurately disclosed.
USO, which is managed by USCF Investments, does not directly purchase crude, instead offering exposure by buying futures contracts linked to the price of US oil. The fund then needs to roll those contracts into longer dated instruments before they expire.
The cost of doing so has been a drag on performance in periods of so-called contango, when long dated oil futures are more expensive than those expiring soon.
But it is a benefit when the oil market is in a period of “backwardation,” meaning current oil prices are higher than those several months out. That is the case today, as the supply shock sparked by the Middle East conflict pushes up spot oil prices, but traders bet the bottleneck will be resolved in the coming months.
The fund has gained 71 per cent this year, compared with a 67 per cent rise in spot WTI prices.
Rising activity in the fund was suggestive of “everyone [piling] in,” said Todd Sohn, chief ETF strategist at Strategas. “One person says the ticker ‘USO’ and it’s just a rush into it. And they may not even understand how the product works, because it’s futures . . . It’s almost a buy first and then figure out what you’re doing later.”
