Attention! Multiple crude oil LOF funds are collectively suspending trading! What signals does this send?

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Source: Futures Daily

Recently, due to sharp fluctuations in international oil prices, several crude oil-themed LOF funds have been trading at prices significantly above their net asset value in the secondary market, resulting in large premiums. To prevent trading risks and protect investors’ interests, the relevant funds have issued announcements and suspended trading.

On March 26, announcements from China Asset Management, E Fund, and Southern Fund showed that products such as China Asset Oil Securities Investment Fund (QDII-LOF), E Fund Oil Securities Investment Fund (QDII), and Southern Oil Securities Investment Fund Class A (Southern Oil LOF) have trading prices in the secondary market that deviate noticeably from their net asset values, with premiums remaining high. Investors buying fund shares at high premiums may suffer significant losses once the premiums normalize. To safeguard shareholders’ interests, the fund companies have issued suspension and risk warning notices, and the related crude oil LOFs have temporarily suspended trading during the trading day.

At noon on March 26, the Shenzhen Stock Exchange announced that China Asset Oil LOF and E Fund Oil LOF, due to the persistent high premiums in the secondary market, would suspend trading from the market open until close. Additionally, Southern Fund also announced that as of the midday close on March 26, the trading prices of Southern Oil LOF in the secondary market were significantly above their net asset values, with large premiums, and trading was suspended from market open until the end of the day.

It is understood that these crude oil LOFs are all QDII products based on crude oil commodities, with investments in overseas assets. Their net value trends closely track international crude oil futures prices.

The frequent issuance of risk warnings and suspension notices for these oil LOFs indicates a clear signal of short-term market overheating and sentiment reaching a peak, according to analysts. Chen Dong, senior researcher at Baocheng Futures Chemical Industry, noted that the premiums of China Asset, E Fund, and Southern Fund’s crude oil LOFs all exceeded 30%, reflecting high bullish sentiment among on-market funds rather than improvements in the underlying asset fundamentals. Due to the depletion of foreign exchange quotas for QDII and the suspension of subscriptions, arbitrage mechanisms have failed, forcing funds to chase prices on the market, causing prices to diverge sharply from the actual value of the underlying assets.

“This kind of emotional premium is driven by panic buying triggered by Middle East geopolitical conflicts. The turnover rates and premiums of these crude oil LOFs are at historically extreme levels. Suspension is a regulatory and fund company measure to ‘cool down’ the market, indicating that short-term market sentiment has peaked and bubble risks are very high,” Chen Dong said. Historical data shows that after such LOF premiums peak, they are often followed by significant declines in the valuation of the underlying assets and rapid convergence of premiums, which can send short-term negative signals to crude oil futures prices.

Yesterday, geopolitical risks increased again, and international oil prices surged sharply.

Regarding the fundamentals of the crude oil market, Du Bingqin, Director of Energy and Chemical Research at Everbright Futures, stated that Saudi Arabia, Iraq, the UAE, and Kuwait have collectively cut production by 8.8 million barrels per day, with affected capacity in Middle Eastern refineries around 6.5 million barrels per day. Notably, Iran has released some ships and begun charging transit fees on certain merchant vessels, with some Asian oil tankers gaining passage. In terms of inventories, U.S. commercial crude oil and distillate inventories increased significantly this week, while gasoline inventories decreased. Despite an increase of nearly 2.6 million barrels in crude oil processing, net imports also rose, and crude inventories have increased for five consecutive weeks. Given the uncertain geopolitical situation, crude oil prices are expected to remain highly volatile.

Chen Dong also pointed out that the current market shows a “cooling sentiment + weak fundamentals” resonance, and in the short term, it is advisable to strictly control positions, avoid high-premium LOFs, set strict stop-loss levels, and wait for sentiment and prices to stabilize.