An exchange-traded product designed for high-leverage gains when oil prices fall has recorded its largest-ever weekly capital withdrawal, as several factors that previously helped cap price surges begin to lose their effect.

Data shows that last week, investors pulled approximately $220 million from the ProShares UltraShort Bloomberg Crude Oil ETF. This outflow marks a historic high for the fund, which aims to deliver twice the inverse of the daily performance of its benchmark index. During the period, that index rose by 2.2%.

In contrast, several investment vehicles structured to profit from rising oil prices, including the United States Oil Fund and the Brent Crude Oil Fund, saw notable capital inflows over the same timeframe.

This capital flight coincides with global crude inventories declining at a record pace and a renewed escalation of hostilities in the Middle East, which may further complicate negotiations. The US-Iran conflict has led to a near-closure of the critical Strait of Hormuz, reducing the region's oil supply to global customers and sparking a surge in retail investment in oil trades.

Brett Kenwell, an analyst at eToro who tracks retail investment, commented, "A quick resolution that might have led to a significant oil price drop has not materialized, while upside risks to prices remain. This backdrop makes it very difficult for investors to hold onto inverse oil ETFs for the long term—and in leveraged products, volatility is an opportunity, but time is a risk."

He also noted that last week's outflow might partly reflect a pullback following gains in the prior two weeks. Additionally, the fund's recent 1-for-4 reverse stock split served as a "reminder to investors not to stay in leveraged products for too long."

Despite the outflow, the broader market context is actually bearish, contradicting early predictions from the initial conflict phase that oil could surge to $200 per barrel. Since the US and Iran reached a ceasefire in early April, WTI futures prices have fallen by roughly one-fifth, pressured by record US exports and some intermittent, though reduced, oil flow through the Strait.

As another sign of bearish sentiment, hedge funds and other money managers increased their net short positions in WTI to the highest level since mid-February—just before the Middle East hostilities erupted—in the week ending June 2.

However, retail investors often position themselves contrary to extreme market sentiment, employing a "buy the dip" strategy to profit when prices eventually rebound and recover.