The premium rate of crude oil funds plummeted after being temporarily suspended for 1 hour during intraday trading for 7 consecutive trading days.
According to the data, up to the latest closing price, the premium rates of four crude oil and commodity funds, including E-Fonda Crude Oil A RMB, China Southern Crude Oil A, Harvest Crude Oil, and Cathay Pacific Commodities, dropped sharply by more than 40 percentage points from the end of April.
The highest decline was 57.5 percentage points
According to the data, as of the close of trading on May 12, the average premium rate of four crude oil and commodity funds, including E-Funda Crude A RMB, China Southern Crude Oil A, and Harvest Crude, was 46.08%, down 41.6 percentage points from the average premium rate on April 28 before the implementation of the “1 hour intraday suspension” was implemented.
Among them, the premium rate of Southern Crude Oil A declined the most, from 111.5% on April 28 to 54% now. The premium rate was reduced by 57.5 percentage points. In the same period, the premium rates for E-Fonda Crude A in RMB and Harvest Crude Oil also fell by more than 40 percentage points. Currently, the premium rates are 66.79% and 35.6% respectively.
Influenced by many factors such as the rebound in international crude oil prices in this round, the suspension of subscriptions for high-premium funds, the temporary suspension of trading for 1 hour during the intraday period, and fund companies repeatedly indicating the risk of high premiums, the previous phenomenon of high premiums above 100% due to large fluctuations in international oil prices, surging bottom-hunting funds, and the loss of QDII quotas no longer existed, and the premium rates of many crude oil funds were “cut in half.”
According to Liu Yiqian, general manager of the Shanghai Securities Fund Evaluation Research Center, there are complex reasons for the large premiums of crude oil funds. They are not only related to the scarcity impact brought about by the suspension of product purchases, but also related to the fact that some investors did not fully understand such products and did not fully understand their premium risks. Therefore, risk warning through temporary suspension measures has a positive effect on calming premium risk.
A researcher at a third-party sales agency in Beijing also believes that in just 7 trading days, the premium rate of crude oil funds fell sharply, which is linked to high-premium oil and gas fund restrictions, fund companies repeatedly hinting at high premium risks, and implementing temporary intraday suspension measures, and a sharp rebound in overseas oil and gas prices. The above factors are all conducive to market cooling, and products traded at high premiums are gradually returning to the net worth of the fund itself.
Although the high premium rate of crude oil funds has declined sharply, they are still in a historically high position. According to the data, as of the close of trading on May 12, the average premium rate of the nine oil and gas market funds currently reached 19.58%. The premium rate of E-Fangda crude oil A, which has the highest premium rate, is as high as 66.79%. The premium rates for China Southern Crude Oil A, Harvest Crude Oil, and Cathay Pacific commodities are also higher than 20%.
While international oil prices are still facing large variables, the risk of high product premiums is still worth watching out for. The temporary suspension of oil and gas funds in the market will also depend on changes in product premium rates.
International oil prices are still facing large variables
In fact, due to the high premium phenomenon in the oil and gas products market, although the international crude oil market has rebounded sharply since late April, along with the decline in the high premiums of crude oil funds, these on-market funds have not shown a corresponding “profit making effect.”
Data shows that since late April, the crude oil market has bottomed out. U.S. crude oil futures prices have risen above 25 US dollars, a rebound of more than 20% from the April 28 low; oil also rose to around 30 US dollars, and the rebound over the same period was also around 30%.
On the other hand, looking at the high-premium crude oil funds mentioned above, the average drop in market prices was 5.87%. China Southern Crude Oil A, the biggest drop, fell by more than 10%, and all four high-premium products recorded negative earnings during the same period.
A researcher from a third-party sales agency in Beijing mentioned above said that although crude oil assets have rebounded significantly, the decline in the premium rate exceeds the extent of the rebound in net worth of funds, which will cause crude oil to rise and crude oil market fund prices to fall during the same period.
As an oil and gas fund, the future trend of international oil prices is still a key influencing factor in the trend of product premium rates. A number of investors said that although oil prices have continued to rebound recently, crude oil production in the Organization of Petroleum Exporting Countries (OPEC) and other major oil-producing countries has begun to decline, gasoline inventories have declined, and demand recovery expectations are rising, but there is still a possibility of a sharp shock in the market.
Wei Fengchun, chief macro strategy analyst at Bosch Fund, believes that the OPEC+ production reduction agreement was reached, but the magnitude is not enough to make up for the contraction in demand brought about by the COVID-19 pandemic. Global inventories continue to rise, and oil storage tanks are becoming increasingly tight. Near the expiration date of the WTI crude oil futures contract in June, the market may face another liquidity crisis, and it is expected that oil prices will still fluctuate sharply.
The latest Huabao Securities research report also continues to suggest that “oil and gas investors should beware of the risk of high premiums in the market.”
In addition to warning of risks, there are also suggestions from industry insiders that appropriate management and investor education for ordinary investors should be strengthened so that investors can choose financial products rationally according to their own circumstances.
Liu Yiqian suggested that from the perspective of an ordinary investor, when investing in any product, first, you should clearly understand your risk bearing capacity and not invest too riskily beyond your own risk level; second, you should clearly understand the product characteristics and risk characteristics of the products you plan to invest in, and not easily participate in products you are not familiar with; third, investment products should establish reasonable investment expectations, and at the same time make reasonable allocation according to one's own needs, without impulsive investment or irrational allocation.
