Crude oil fund premiums remain high! Several products were again suspended for one hour during Wednesday's early trading session.

On the evening of March 24, E Fund’s Crude Oil LOF, Huaxia’s S&P Global Oil LOF, Harvest’s S&P Oil & Gas ETF, and Frontier’s S&P Oil & Gas ETF all issued premium risk alerts and trading halt announcements. According to the announcements, in order to protect investors’ interests, the relevant products will be halted from the start of trading on March 25 until 10:30 a.m. that day, and will resume trading at 10:30 a.m. on March 25.

Behind the frequent risk alerts from fund companies is the sustained high level of the premium rate of crude oil funds.

A reporter from The Paper, based on Wind data, calculates that as of March 24, the premium rates of E Fund’s Crude Oil LOF and Harvest’s Crude Oil LOF were as high as 57.73% and 55.90%, respectively; the premium rates of Southern Fund’s Crude Oil LOF and Huaxia’s S&P Global Oil LOF were 49.32% and 28.17%, respectively.

Meanwhile, judging from single-day price changes, E Fund’s Crude Oil LOF and Harvest’s Crude Oil LOF rose by more than 6% on Tuesday. Looking over a longer period, Harvest’s Crude Oil LOF has gained as much as 97.06% within the month, while E Fund’s Crude Oil LOF and Southern Fund’s Crude Oil LOF have gained 84.73% and 77.76%, respectively, within the month.

Actually, on the afternoon of March 24, the Shenzhen Stock Exchange announced that, because the intraday premium of the trading price in the secondary market had not fallen back, in accordance with the business rules related to fund company applications and this exchange’s relevant rules, E Fund’s Crude Oil LOF and Harvest’s Crude Oil LOF would implement a temporary trading halt from the start of afternoon trading until the close.

In their announcements, E Fund and Harvest emphasized that if investors blindly buy in at a high premium that deviates significantly from the actual value of the assets, they may face major investment losses later due to a decline in secondary-market prices. During the trading halt period, fund redemption business will continue as usual. Going forward, the funds will take measures such as increasing the number of trading halt times and extending the trading halt duration based on the premium rate situation; the specific details will be subject to the announcements at the time.

It is worth noting that the exchange chose to execute this during the midday recess period, which is not a common case for “pressing” funds into a trading halt. Earlier, in early March, Huaxia’s S&P Global Oil LOF and Southern Fund’s Crude Oil LOF were also urgently halted intraday due to a “high fever” from the premium.

In the ETF market, the premium problem should also not be ignored. As of the close on March 24, Frontier’s S&P Oil & Gas ETF had a premium rate of 28.75%, the highest in the entire market; Harvest’s S&P Oil & Gas ETF also had a premium rate of 19.98%, ranking next.

Analysts believe the strong rally of oil and gas funds is mainly driven by the ongoing escalation of geopolitical conflicts and the concentration of capital inflows. At the same time, however, the characteristics of oil-and-gas exchange-traded funds—high premiums, high volatility, and intense speculation—have become more pronounced. If geopolitical conflicts further escalate, oil prices may remain at high levels; but if the situation eases or oil prices surge and then pull back, related products may face pressure for a rapid correction.

“Under the influence of supply and demand, trading prices in the secondary market often deviate from net value. When buy orders are stronger than sell orders, the price may be higher than the real-time indicative net asset value (IOPV), thereby creating a premium. But prices always fluctuate around value. In the short term, a supply shortage relative to demand can push prices high, but they will ultimately return to value.” An industry insider noted that the current crude oil market is driven by capital. Once buy orders weaken or supply increases, the premium will narrow and may even disappear, meaning those who entered at high levels will bear losses, and the risk of premium contraction is extremely high.

The Paper reporter Ding Xinqing

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Responsible editor: Hao Xinyu