Record Inflows Mask Deep Market Divisions
March 2026 saw a record $2.2 billion pour into oil-linked exchange-traded funds, highlighting a market deeply divided by escalating geopolitical events. The ProShares UltraShort Bloomberg Crude Oil ETF (SCO), which aims for twice the inverse daily performance of WTI crude futures, attracted $977 million. This significant inflow occurred as SCO registered a 41% decline over the month. This paradox suggests investors were making strong contrarian bets or seeking to profit from a potential sharp reversal in oil prices. Meanwhile, bullish funds also saw record demand: the United States Oil Fund (USO) gathered about $700 million, its highest monthly inflow since the pandemic, and the United States Brent Oil Fund (BNO) attracted a record $600 million. This divergence reflects a market struggling with unpredictable supply disruptions and hopes for de-escalation.
Inverse ETFs Draw Cash Despite Heavy Losses
On April 1, 2026, Brent crude hovered around $101 per barrel. This price remained elevated due to ongoing Middle East tensions and threats to key shipping routes like the Strait of Hormuz, though down from recent peaks. The ProShares UltraShort Bloomberg Crude Oil ETF (SCO) traded at $8.78, a significant drop from its earlier highs. Despite the massive inflows, SCO lost 41% in March, a result of Brent crude's notable monthly advance, reportedly a 60% surge. This inverse relationship shows the high volatility of leveraged ETFs, especially during rapid sentiment shifts driven by geopolitical news. SCO has an expense ratio of 0.95% and a history of long-term underperformance, making its recent strong investor demand unusual.
Bullish ETFs Also See Record Demand
The United States Oil Fund (USO) and United States Brent Oil Fund (BNO) are bullish ETFs that track crude oil futures. USO focuses on WTI crude, aiming for its net asset value to mirror daily changes in the benchmark futures contract within a 10% band, and has a 0.70% expense ratio. BNO tracks Brent crude futures with a higher expense ratio of 1.14% and operates as a limited partnership. Both funds use strategies for managing futures contracts that can cause their performance to diverge from spot prices due to market structures like contango or backwardation. The large inflows into USO and BNO suggest investors anticipate higher prices or are hedging against inflation, despite ongoing geopolitical risks.
Risks and Complexities in Oil ETF Investing
Investing in leveraged and inverse ETFs like SCO carries considerable risks. SCO's 0.95% expense ratio is higher than average for its category, and its long-term performance shows significant capital erosion. For funds like USO and BNO, managing futures contracts can lead to losses, especially in contango markets, which can reduce returns even if spot oil prices are stable. BNO's limited partnership structure also involves complex tax reporting for investors. Geopolitical bets are inherently unpredictable. While hopes for de-escalation temporarily calmed prices, ongoing threats to key shipping lanes like the Strait of Hormuz maintain a significant risk premium. J.P. Morgan and Goldman Sachs forecast average Brent prices between $60-$85 per barrel for 2026, noting geopolitical events as a major unknown that could change projections. The EIA expects prices to drop significantly by Q3 2026, depending on the conflict's duration.
Analyst Forecasts Divided on Future Oil Prices
Looking ahead, analysts' forecasts for 2026 oil prices remain split, reflecting the ongoing balance between supply-demand fundamentals and unpredictable geopolitical events. Goldman Sachs increased its 2026 Brent forecast to $85 per barrel, citing the potential for prolonged Strait of Hormuz disruptions as a major supply shock. S&P Global Ratings also raised its 2026 WTI and Brent price assumptions due to expected extended disruptions. In contrast, J.P. Morgan anticipates lower average prices based on softer supply-demand dynamics. The EIA predicts a significant price drop later in 2026, contingent on the conflict's resolution. How the market reacts to continued conflict or de-escalation will significantly influence whether bullish trends or bearish bets on inverse ETFs gain traction.