After gold comes crude oil? Retail investors are speculating frantically, with inflows into U.S. crude oil ETFs surpassing record highs.

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The Iran war has triggered intense turmoil in global energy markets, with retail investors flocking to bet on oil prices, turning the crude oil market into the latest investment arena after gold.

According to VandaTrack data, in the past five trading days, retail inflows into the United States Oil Fund (USO) reached a record $115 million, surpassing the historical peak at the onset of the 2020 pandemic.

Meanwhile, Bloomberg data shows that option activity linked to USO has surged to the highest level ever this week, and option activity for ProShares leveraged oil ETF (UCO) has also reached a four-year high.

This wave of speculation reflects retail investors’ strong preference for high-risk assets, but it is also causing concern among market observers—when oil prices fell into negative territory in 2020, retail investors suffered heavy losses during a similar buying frenzy, with USO plunging 68% for the year.

War shocks propel wild swings in oil prices

The direct catalyst for this round of volatile crude oil markets is the sharp escalation of the Middle East situation. According to the Financial Times on Monday, two weeks ago, the US and Israel launched attacks on Iran, causing the conflict to escalate and almost completely disrupting energy flows through the Strait of Hormuz.

WTI crude futures jumped from $67 per barrel before the war to nearly $120 on Monday, a gain of nearly 80%. Afterwards, Trump suggested the war would be brief, and oil prices fell back, but currently remain near $100 per barrel and continue to fluctuate highly—Iran is still targeting ships passing through the Strait of Hormuz.

Due to supply shocks, the oil market is currently in a "spot premium" state, meaning near-term contract prices are above long-term contracts, which gives a tailwind to the USO fund holding futures. Since the beginning of the year, USO has risen 71%, slightly higher than WTI spot’s 67% increase.

Retail investors flood in, record inflows to USO

Viraj Patel, Deputy Head of Research at VandaTrack, issued an early warning last week, saying the oil market shows "early signs of a mini bubble forming among retail investors," and remarked that "going long oil may be becoming the next 'Meme theme' for retail investors."

This assessment is being borne out by the data. With $2.7 billion in assets under management, USO is the largest ETF in the crude oil market, and this week’s inflows have surpassed the historical peak at the onset of the pandemic in 2020.

At the same time, retail participation channels are moving toward even higher risk: daily trading volume of tokenized oil futures on crypto platform Hyperliquid has soared from about $20 million two weeks ago to nearly $1 billion on Friday; prediction markets Polymarket and Kalshi have launched dozens of oil price event contracts, one of which tracking the direction of oil prices at the end of March has attracted $31 million in wagers.

Retail enthusiasm is also surging on social media, especially TikTok. One blogger, who usually posts emotional advice content, stated in a Thursday video: "I am locking in USO right now... This is my way of hedging my portfolio and diversifying my risk-reward matrix."

Complex product mechanics, risks for retail investors shouldn't be ignored

USO, managed by USCF Investments, does not directly hold crude oil, but provides exposure to oil prices by buying futures contracts linked to oil, and rolls these contracts into further-dated contracts before expiration.

This mechanism can drag on fund performance when the oil market is in a "contango" state—when longer-term contract prices are higher than near-term—which was especially punishing in 2020: when oil prices fell into negative territory, USO tanked 68% for the year and investors suffered heavy losses, prompting scrutiny from regulators regarding the adequacy of the fund’s risk disclosures.

Todd Sohn, Strategas Chief ETF Strategist, expressed concerns about the current rush: "This is a scenario where everyone just piles in," he said, "People mention 'USO,' and everyone rushes in. They might not even understand how the product works, since it’s based on futures... They just buy first, and figure out what they’ve done later."

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