How to "invest" in oil?

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fittan
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How to "invest" in oil?

Post by fittan »

Ok I'll admit it is not investing but gambling. If I want to bet on oil price what is the best way to do it? Is there a particular mutual fund that correlates fully to oil price? I know I can invest in Exxon etc but like to know if there are more direct alternatives.
Pablov
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Re: How to "invest" in oil?

Post by Pablov »

There are ETFs that invest in oil futures such as USO and OIL.
That is one way to go.

You can also go with a bit more of a "diversified" approach by betting in an ETF that follows an energy index (companies related to energy) such as VDE (Vanguard Energy Index Fund ETF Shares)

If you look at the holding of this ETF the large oil companies make up a large chunk of the index (Chevron, Exxon, etc)

I don't know about the correlation between any of these and oil futures but I would it is strong. And as far as I know, unless you want to actually buy oil futures, these ETFs (or similar) ones are the way to go.

IMO, with the current oil levels, these things will go up sooner than later. If you don't have a timeframe in mind, it is probably a good bet. In the meantime, and ETF like VDE has a current dividend of around 7% (which might not hold but it is a nice start.)
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David Jay
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Re: How to "invest" in oil?

Post by David Jay »

Pablov wrote: Fri Apr 17, 2020 11:46 amThere are ETFs that invest in oil futures such as USO and OIL.
May I suggest extreme caution before you jump into something like USO, see this thread: viewtopic.php?f=10&t=312092
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stormcrow
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Re: How to "invest" in oil?

Post by stormcrow »

Oil futures trade under the ticker /cl. Good luck with that, and keep a lot of reserves handy if you're diving in.
inbox788
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Re: How to "invest" in oil?

Post by inbox788 »

The issue with commodities, currencies and real estate to some degree is that your only return is from appreciation and you have a holding or carrying cost. At least with real estate, there is a rental income to offset some of that. Art and collectibles have similar long term issues. Short term, they're all very tradeable, though risky.

Oil at these levels isn't sustainable, so it's an interesting bet. There was speculation that it would go under $10, and eventually, they could pay you to take it off their hands the way some lenders are paying instead of charging interest. I'm betting producers around the world are capitulating and shutting off production before it gets there, though with financing, it's gone on a lot longer than I would have thought. Still, with a physical commodity and real costs instead of just numbers, I think we're already there with oil, so I'm putting on a small bet for the next 3-6 months, just to make myself pay a little more attention to the matter. Bought USO at $4 (WTI < $20) and plan to sell at $6-8 (estimate WTI $30-40) in about 3 months if goes as planned. Also hopefully will learn more about this contango (also "super contango") business and how USO does or doesn't track.

https://www.marketwatch.com/story/oil-m ... 2020-04-17

My brokerage account wouldn't let me buy OIL and futures still confuse me, along with margin requirements and risk. So paying for the ETF was simpler and safer for me.

https://www.marketwatch.com/investing/f ... electronic

Seems like this super contango (May 18, June 25, July 29, Aug 31, Sep 32) could mean that if oil goes to $30 by July or August, the cost to roll up each month might mean that USO stays at $4, and if it stays near $20, USO could be worth less than $4. How much of the futures is baked into the price and where would one look to see holdings and when they roll?
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JoMoney
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Re: How to "invest" in oil?

Post by JoMoney »

Do you have reason to believe you have better information about 'oil' than other market participants (many of them being directly involved in oil production) ?
I would suggest that if you don't, you're likely at a disadvantage. If the market was "efficient", your trading in it would be zero-sum at best, minus expenses.
If you're just looking for something to bet on, I think you'd have more fun taking it to Vegas. There are some casino games where the casinos advantage has a lower implied cost to you than the bid/ask spread of some market traded instruments.
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Re: How to "invest" in oil?

Post by nisiprius »

Be careful. Anything you are considering, ask a dozen times, read the fine print, and check, check, check: does this product really track the price of oil? And then come back to the forum with the specific name of the product that interests you and ask the forum, does this product really track the price of oil?

What else could it track? Oil futures. Oil-related businesses. Does it matter? Yes.

We've been here before. Disable Javascript to avoid paywall, then read this 2010 article: Amber Waves of Pain:
....Wolf was watching oil fall to $34 a barrel. That had to be an opportunity, he figured, so he called his Merrill broker and asked about the U.S. Oil Fund (USO), an ETF designed to track the price of light, sweet crude....

What happened next didn't make sense. Wolf watched oil go up as predicted, yet USO kept going down. In February 2009, for example, crude rose 7.4 percent while USO fell by 7.4 percent.
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arcticpineapplecorp.
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Re: How to "invest" in oil?

Post by arcticpineapplecorp. »

I've heard it said here (just the other day actually), if you have to ask you probably shouldn't do it.

Now that that's out of the way, perhaps instead of asking "How" to invest in oil, I'd like to ask you "Why you'd invest in oil?"

Answer that question for us, and then we can talk about the assumptions you may be making regarding sector risk, lack of diversification, etc.

you also might want to read:
viewtopic.php?f=10&t=310395=oil#p5154076
viewtopic.php?f=10&t=310395
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
inbox788
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Re: How to "invest" in oil?

Post by inbox788 »

Negative oil prices! Who would have thunk that? I hope USO can't go negative. I wouldn't want to lose $5 on my $4 "investment".

Texas Oil at $2 a Barrel Raises Specter of Negative Prices [behind paywall]
https://www.bloomberg.com/news/articles ... ive-prices
glorat
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Re: How to "invest" in oil?

Post by glorat »

inbox788 wrote: Fri Apr 17, 2020 6:38 pm Negative oil prices! Who would have thunk that? I hope USO can't go negative. I wouldn't want to lose $5 on my $4 "investment".

Texas Oil at $2 a Barrel Raises Specter of Negative Prices [behind paywall]
https://www.bloomberg.com/news/articles ... ive-prices
For sale of education and comparison... Electricity markets have a famous known normal case of negative prices that can but traders.

If you trade electric power, it is not something you can intrinsically buy and hold. If you are long, you must deliver in the half hour slot you've bought it for. If you've bought some and have nowhere to send it by that time, you'll have to pay a fee to "dump" the electricity into the ground.

I suppose this doesn't happen much in practice since this event typically only happens when a trader really screws up and there are classical market participants like hydro dams that can pump water back up stream or modern participants like the Tesla battery in Australia that can "hold" power
inbox788
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Re: How to "invest" in oil?

Post by inbox788 »

glorat wrote: Sat Apr 18, 2020 9:29 amFor sale of education and comparison... Electricity markets have a famous known normal case of negative prices that can but traders.

If you trade electric power, it is not something you can intrinsically buy and hold. If you are long, you must deliver in the half hour slot you've bought it for. If you've bought some and have nowhere to send it by that time, you'll have to pay a fee to "dump" the electricity into the ground.

I suppose this doesn't happen much in practice since this event typically only happens when a trader really screws up and there are classical market participants like hydro dams that can pump water back up stream or modern participants like the Tesla battery in Australia that can "hold" power
It's sad, but I'm hearing that in the food chain where milk is being dumped and fresh vegetables go unpicked and plowed back in the ground. Even tankers of beer are being dumped directly into wastewater treatment centers.
https://www.nytimes.com/2020/04/11/busi ... -food.html
https://www.kgw.com/article/money/busin ... 0ac66f3ad4

Here's another recent article against using USO, and even suggest you should short it! ("If you want us to put it in layman terms - you are getting a really bad deal being long USO, but you might make more by betting against USO.")

If You're Betting On Higher Oil Prices, USO Is Not The Right Vehicle
https://seekingalpha.com/article/433831 ... ht-vehicle

The article and others I came across mention that USO is already going beyond the usual front month (May) and is already 20% of June WTI futures because of the current pricing situation and lots of money flow into the fund. Warns of potential trouble ahead. Make me think I should abort this foolish errand instead of wait for more production cuts, or at least seek out a better trading instrument.

ConocoPhillips to Voluntarily Curtail 225,000 Gross Barrels of Oil per Day; Reduces 2020 Cash Uses by Additional $3 Billion for Total Reduction of Over $5 Billion
http://www.conocophillips.com/news-medi ... 5-billion/

Another interesting note is what the Saudi Arabia's sovereign wealth fund is buying today.
European oil majors, including Shell, Eni, Equinor, and Repsol, with the total price paid for all four stakes seen at $1 billion. The fund, interestingly enough, was supposed to be the primary investment vehicle on Saudi Arabia's journey to economic diversification away from oil.

In all fairness, the fund has also bought a stake in cruise operator Carnival and became a partner in the group that bought English soccer club Newcastle for $375 million (300 million pounds). And it seems the buying spree is far from over.
https://oilprice.com/Energy/Crude-Oil/S ... ambit.html

The way I see this is that they're moving up the chain to help diversify away from spot and future crude prices.
Beliavsky
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Re: How to "invest" in oil?

Post by Beliavsky »

fittan wrote: Fri Apr 17, 2020 11:06 am Ok I'll admit it is not investing but gambling. If I want to bet on oil price what is the best way to do it? Is there a particular mutual fund that correlates fully to oil price? I know I can invest in Exxon etc but like to know if there are more direct alternatives.
Oil futures prices by tenor are listed at the CME. The question is not whether oil prices will rise but whether they will rise faster than what the futures are implying.
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Re: How to "invest" in oil?

Post by Valuethinker »

glorat wrote: Sat Apr 18, 2020 9:29 am
inbox788 wrote: Fri Apr 17, 2020 6:38 pm Negative oil prices! Who would have thunk that? I hope USO can't go negative. I wouldn't want to lose $5 on my $4 "investment".

Texas Oil at $2 a Barrel Raises Specter of Negative Prices [behind paywall]
https://www.bloomberg.com/news/articles ... ive-prices
For sale of education and comparison... Electricity markets have a famous known normal case of negative prices that can but traders.

If you trade electric power, it is not something you can intrinsically buy and hold. If you are long, you must deliver in the half hour slot you've bought it for. If you've bought some and have nowhere to send it by that time, you'll have to pay a fee to "dump" the electricity into the ground.

I suppose this doesn't happen much in practice since this event typically only happens when a trader really screws up and there are classical market participants like hydro dams that can pump water back up stream or modern participants like the Tesla battery in Australia that can "hold" power
Actually it happens all the time.

Except for Alpine countries like Norway pimped storage Hydro is a tiny fraction of annual demand.
Batteries are too little to be noticeable.


Coal fired power stations take hours to get on and off the grid. Nuclear stations similarly cannot be switched "on" and off.

As the levels of intermittent renewables like solar and wind, chiefly, rise inexorably towards 50% or more of energy demanded you have a situation where the marginal cost of electricity production approaches zero.

Thus supply can easily exceed demand and you wind up paying the grid to take away your generation.

A good example is Ontario. About 60% nuclear and 30% hydro electric. In spring, especially post 10 pm, when demand is low and the dams are full from spring runoff, Ontario winds up paying the Midwest US ISO to take away its surplus power.

UK is starting to have more of these scenarios because of its growth in offshore wind. When wind speeds are high there may just be too much power.
inbox788
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Re: How to "invest" in oil?

Post by inbox788 »

Beliavsky wrote: Sat Apr 18, 2020 3:29 pm
fittan wrote: Fri Apr 17, 2020 11:06 am Ok I'll admit it is not investing but gambling. If I want to bet on oil price what is the best way to do it? Is there a particular mutual fund that correlates fully to oil price? I know I can invest in Exxon etc but like to know if there are more direct alternatives.
Oil futures prices by tenor are listed at the CME. The question is not whether oil prices will rise but whether they will rise faster than what the futures are implying.
The futures answers a different question. Right now July WTI futures is almost $30, so if I want a barrel to sell for what I think will be $30 in July, I've got to pay $30 now, which leaves little profit unless it goes much higher than that. And I could even lose money if doesn't meet mine and everyone's expectations of $30 in July.

Using USO, it's even more confusing since it seems to be holding WTI May and now added WTI June (changing their investment philosophy a bit). In either case, they're planning to roll the future contracts forward on a set schedule paying a price difference.

Returning to OPs question, is it possible to approximate paying $18 today for a barrel and somehow holding it until July and sell if for $30 (assuming that's the spot price then)? I could do something like that with stocks, euros, bitcoin, gold, n95 masks, baseball cards, etc. with some shipping and/or storage costs, hopefully not too significant, but this is currently quite an unusual situation with oil.

https://www.reuters.com/article/us-glob ... SKBN21Z2A2

A 50% return in 3 months is quite nice if it could be achieved, but even if this was the right call, OP is also asking how it compares to allied investments like Exxon. I would think companies like Chesapeake Energy (CHK under $15/share or 150M market cap) would be an even better bet if $30 crude is on the horizon or they receive a bailout or support, if only they bounce back from the brink of bankruptcy. Of course, these are short term bets, whose outcomes shouldn't be given too much weight win or lose.

Long term, XLE is a consideration for an energy sector bent.
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Re: How to "invest" in oil?

Post by emoore »

fittan wrote: Fri Apr 17, 2020 11:06 am Ok I'll admit it is not investing but gambling. If I want to bet on oil price what is the best way to do it? Is there a particular mutual fund that correlates fully to oil price? I know I can invest in Exxon etc but like to know if there are more direct alternatives.
I'd advise against investing in a dying energy source. I used to think that peak oil was in 2024 or so but I think we already hit it. Oil has no where to do but down. way to volatile to invest in.
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Re: How to "invest" in oil?

Post by mikemartin82 »

JoMoney wrote: Fri Apr 17, 2020 5:27 pm Do you have reason to believe you have better information about 'oil' than other market participants (many of them being directly involved in oil production) ?
I would suggest that if you don't, you're likely at a disadvantage. If the market was "efficient", your trading in it would be zero-sum at best, minus expenses.
If you're just looking for something to bet on, I think you'd have more fun taking it to Vegas. There are some casino games where the casinos advantage has a lower implied cost to you than the bid/ask spread of some market traded instruments.
What time horizon does the efficient market use to price stocks? In other words, if I'm investing for the time horizon the stock is priced for, I would definitely be gambling. But if I plan on holding my investment for 20 years, things change dramatically.

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” ― Benjamin Graham
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Re: How to "invest" in oil?

Post by fanmail »

Buy May futures and take physical delivery, hold and hedge with further out on the curve to capture the contango. Otherwise, you have a very speculative chance of making any gains.
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JoMoney
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Re: How to "invest" in oil?

Post by JoMoney »

mikemartin82 wrote: Sat Apr 18, 2020 8:59 pm
JoMoney wrote: Fri Apr 17, 2020 5:27 pm Do you have reason to believe you have better information about 'oil' than other market participants (many of them being directly involved in oil production) ?
I would suggest that if you don't, you're likely at a disadvantage. If the market was "efficient", your trading in it would be zero-sum at best, minus expenses.
If you're just looking for something to bet on, I think you'd have more fun taking it to Vegas. There are some casino games where the casinos advantage has a lower implied cost to you than the bid/ask spread of some market traded instruments.
What time horizon does the efficient market use to price stocks? In other words, if I'm investing for the time horizon the stock is priced for, I would definitely be gambling. But if I plan on holding my investment for 20 years, things change dramatically.

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” ― Benjamin Graham
Owning a profitable business (stocks by proxy), intrinsically has some return that we expect (hope) will grow over time. Garnering that long-term economic return from being a owner is a completely different proposition then people who want to "trade" and expect to earn something more from trading in and out of those businesses on top of whatever their long-term economic prospects are.
With commodities like oil brought up here, it has zero intrinsic return. Maybe a producer who pumps it out of the ground can expect a profit on it, but the person who buys the oil on the market likely has no expectation of being able to re-sell it on the market at an even higher price. In the case of commodities, the product wastes over time and has costs to store and deliver it, so time may not improve the prospects of re-selling it at a profit.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: How to "invest" in oil?

Post by acegolfer »

inbox788 wrote: Sat Apr 18, 2020 7:50 pm
Right now July WTI futures is almost $30, so if I want a barrel to sell for what I think will be $30 in July, I've got to pay $30 now,
No. You don't pay $30 now, when you short July futures. You are agreeing to sell at $30 in July, instead. The $ amount you need to pay now depends on initial margin requirement (roughly 3-20% of notional).
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Re: How to "invest" in oil?

Post by brcarls »

emoore wrote: Sat Apr 18, 2020 8:43 pm dying energy source.
Not in my lifetime... fossil fuels will be the dominant energy source on the planet for generations to come. Maybe you can say it is dying when competing energy sources are economically viable without government subsidies, but right now, the only alternative on any meaningful scale is nuclear.
I used to think that peak oil was in 2024 or so but I think we already hit it. Oil has no where to do but down. way to volatile to invest in.
The higher the price gets, the more supply is available. There is more oil still in the ground than has been pumped in all of human history. As technology advances and price increases, we even discover massive "new" reserves that were previously unknown or unobtainable (see fracking for the most recent example).

So, the question is how does the individual take advantage of this temporary disruption in demand and the unsustainably low price of oil while supply and demand are totally out of whack?

Very short term (as in day trading): There are ETFs such as USO,UCO as discussed here in detail, but in that time frame the volatility makes it basically gambling.
Short term (as in months): Futures... expensive and risky
Long term (as in a few years): Invest in oil companies via VDE
inbox788
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Re: How to "invest" in oil?

Post by inbox788 »

acegolfer wrote: Sun Apr 19, 2020 11:02 am
inbox788 wrote: Sat Apr 18, 2020 7:50 pm
Right now July WTI futures is almost $30, so if I want a barrel to sell for what I think will be $30 in July, I've got to pay $30 now,
No. You don't pay $30 now, when you short July futures. You are agreeing to sell at $30 in July, instead. The $ amount you need to pay now depends on initial margin requirement (roughly 3-20% of notional).
No, I’m not trying to sell or short today. I want to buy low today and hold to sell in July, when hopefully it’s $30. I don’t think futures achieves that. Unfortunately, I don’t have capacity to take or make delivery or storage tank or tanker.

FWIW, futures are down 5 to 15% over the weekend, so I’m guessing the $4 USO is down to around $3.50 when the market opens.
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Forester
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Re: How to "invest" in oil?

Post by Forester »

All the retail investors who piled into oil products recently are getting destroyed :oops:

Without the quarantine they'd have been busy at work, not bored and looking for things to gamble on.
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Re: How to "invest" in oil?

Post by dukeblue219 »

West Texas Intermediate at $13/barrel is something I thought I'd never see in my life again. Crazy. There's simply nowhere to put the stuff right now.
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Re: How to "invest" in oil?

Post by acegolfer »

inbox788 wrote: Mon Apr 20, 2020 1:54 am
acegolfer wrote: Sun Apr 19, 2020 11:02 am
inbox788 wrote: Sat Apr 18, 2020 7:50 pm
Right now July WTI futures is almost $30, so if I want a barrel to sell for what I think will be $30 in July, I've got to pay $30 now,
No. You don't pay $30 now, when you short July futures. You are agreeing to sell at $30 in July, instead. The $ amount you need to pay now depends on initial margin requirement (roughly 3-20% of notional).
No, I’m not trying to sell or short today. I want to buy low today and hold to sell in July, when hopefully it’s $30. I don’t think futures achieves that. Unfortunately, I don’t have capacity to take or make delivery or storage tank or tanker.

FWIW, futures are down 5 to 15% over the weekend, so I’m guessing the $4 USO is down to around $3.50 when the market opens.
Why did you write you've got to pay $30 now, then? The spot price is not $30.
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Re: How to "invest" in oil?

Post by CardioMD »

Don’t.
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birdog
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Re: How to "invest" in oil?

Post by birdog »

Adding money to a total stock market index fund on a regular basis like usual is how I’m investing in oil.
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Forester
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Re: How to "invest" in oil?

Post by Forester »

Another way to play this is via tanker stocks $STNG $FRO

Disclaimer: I am a bagholder
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Re: How to "invest" in oil?

Post by BV3273 »

Who’s ready for the “How low can oil go thread”?
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Re: How to "invest" in oil?

Post by ValuationsMatter »

Already at all time inflation adjusted lows. Now, it's down 38% on the day. This looks like a total collapse.
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Re: How to "invest" in oil?

Post by wkimdds »

UCO..
RayKeynes
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Re: How to "invest" in oil?

Post by RayKeynes »

wkimdds wrote: Mon Apr 20, 2020 7:22 amUCO..
Thats what I was thinking too for the mid-term with 2x leverage. However, I do not understand the Bloomberg Subindex it tracks as underlying. Can someone explain how the Bloomberg Subindex fluctuates in price?
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Re: How to "invest" in oil?

Post by deltaneutral83 »

fittan wrote: Fri Apr 17, 2020 11:06 am Ok I'll admit it is not investing but gambling. If I want to bet on oil price what is the best way to do it? Is there a particular mutual fund that correlates fully to oil price? I know I can invest in Exxon etc but like to know if there are more direct alternatives.
Exxon, that company hasn't appreciated a penny in almost 15 years, am I missing something.
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Re: How to "invest" in oil?

Post by birdog »

RayKeynes wrote: Mon Apr 20, 2020 7:25 am
wkimdds wrote: Mon Apr 20, 2020 7:22 amUCO..
Thats what I was thinking too for the mid-term with 2x leverage. However, I do not understand the Bloomberg Subindex it tracks as underlying. Can someone explain how the Bloomberg Subindex fluctuates in price?
I used to trade UCO regularly. I would not recommend it for a "mid-term" speculation. Since it is leveraged it is designed for a one-day holding period. The longer you hold it the more the risk/reward ratio tilts against you due to decay. A non-levered ETF is more advisable for any holding period beyond a few days, IMO.

I no longer speculate (gamble) with my portfolio.
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Re: How to "invest" in oil?

Post by alfaspider »

fittan wrote: Fri Apr 17, 2020 11:06 am Ok I'll admit it is not investing but gambling. If I want to bet on oil price what is the best way to do it? Is there a particular mutual fund that correlates fully to oil price? I know I can invest in Exxon etc but like to know if there are more direct alternatives.
Keep in mind that Exxon and other integrated majors have more complex inputs than just crude prices. They are also refiners and transporters. If you want a company that is only exposed to crude prices, you want a liquids weighted E&P company. The problem with investing in E&Ps, however, is that there could be solvency problems before the price recovers. You won't get to take part in the recovery if the company you invest in goes bankrupt. There are funds that do energy, but make sure you understand what niche within the industry you are investing in. A midstream company may not experience the same market forces as a domestic shale company (for example). I do think that the survivors will emerge from this crisis much stronger. The extreme low prices now mean higher prices later as production capacity gets shut down and investments are stopped cold.

I discussed in another thread, but there's no perfect way for an individual to invest (speculate) in higher oil prices in the future. Keep in mind that the market ALREADY believes oil prices will go up in the future, as demonstrated from the backwardation in the market (i.e. crude 6 months from now is worth a lot more than crude now). That means if you own a storage facility, you get a guaranteed return for storing oil. ETFs that try to track oil prices get creamed when backwardation is this strong, so they aren't much use to an individual who wants to speculate on long term recovery of prices.
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Re: How to "invest" in oil?

Post by inbox788 »

acegolfer wrote: Mon Apr 20, 2020 6:39 am
inbox788 wrote: Sat Apr 18, 2020 7:50 pm Right now July WTI futures is almost $30, so if I want a barrel to sell for what I think will be $30 in July, I've got to pay $30 now,
Why did you write you've got to pay $30 now, then? The spot price is not $30.
July WTI was $30. I didn’t consider margin when figuring out break even prices and profit loss calculations.

What is the immediate spot price and where is it quoted? May WTI are down to nearly $10. I’ve seen a different number reported as spot. If only I had a empty tanker sitting idle.

July WTI futures are down to $28, so isn’t that what I pay now? So if my original expectation of $30 in July were correct, I’d make $2 on the trade. I’d like to make $20 buying at $10 and selling at $30!
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Re: How to "invest" in oil?

Post by acegolfer »

inbox788 wrote: Mon Apr 20, 2020 9:48 am
acegolfer wrote: Mon Apr 20, 2020 6:39 am
inbox788 wrote: Sat Apr 18, 2020 7:50 pm Right now July WTI futures is almost $30, so if I want a barrel to sell for what I think will be $30 in July, I've got to pay $30 now,
Why did you write you've got to pay $30 now, then? The spot price is not $30.
July WTI was $30. I didn’t consider margin when figuring out break even prices and profit loss calculations.

What is the immediate spot price and where is it quoted? May WTI are down to nearly $10. I’ve seen a different number reported as spot. If only I had a empty tanker sitting idle.

July WTI futures are down to $28, so isn’t that what I pay now? So if my original expectation of $30 in July were correct, I’d make $2 on the trade. I’d like to make $20 buying at $10 and selling at $30!
No. When you trade July WTI futures, you don't pay/receive $28 now. $28 is the price you agree to pay/receive later in July. If you had shorted this contract last week when the price was $30, then yes, your current cumulative profit would be $2/bbl.

When you trade futures, you don't need an empty tanker. That's why ppl trade commodity in the futures market not in the spot market.
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Re: How to "invest" in oil?

Post by inbox788 »

acegolfer wrote: Mon Apr 20, 2020 10:05 amNo. When you trade July WTI futures, you don't pay/receive $28 now. $28 is the price you agree to pay/receive in July. If you had shorted this contract last week when the price was $30, then yes, your current cumulative profit would be $2/bbl.

When you trade futures, you don't need an empty tanker. That's why ppl trade commodity in the futures market not in the spot market.
No, I don’t want to trade futures. I want to buy and hold “oil” for a few months. The sticker price I see is $10 (was $20 only a few days ago). I think (or thought) I could sell it for $30 in July. My problem is delivery and storage. Futures solves that but costs a lot. I’m discovering USO uses some of those futures to solve it in a different way (rolling). Neither is going to get me near the 200% ($30-10=20) gross profit potential.
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Re: How to "invest" in oil?

Post by WWJBDo »

nisiprius wrote: Fri Apr 17, 2020 5:57 pm Disable Javascript to avoid paywall, then read this 2010 article: Amber Waves of Pain:...
It's not even 9 am and I have already learned a very valuable tip today. Thank you, nisiprius.
"It is difficult to get a man to understand something when his salary depends upon his not understanding it." Upton Sinclair
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Re: How to "invest" in oil?

Post by DonIce »

I'm surprised no company has started a physical oil ETF. Most unleveraged gold ETFs hold physical gold. You could do the same with oil and charge the storage cost as the ER. It would track the long term price of oil much more closely than oil futures ETFs which are hugely affected by contango/backwardation.

In the current situation, if a company started such a fund they would probably get investment in the billions very quickly... businesses opportunity anyone?
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Re: How to "invest" in oil?

Post by acegolfer »

inbox788 wrote: Mon Apr 20, 2020 10:26 am
acegolfer wrote: Mon Apr 20, 2020 10:05 amNo. When you trade July WTI futures, you don't pay/receive $28 now. $28 is the price you agree to pay/receive in July. If you had shorted this contract last week when the price was $30, then yes, your current cumulative profit would be $2/bbl.

When you trade futures, you don't need an empty tanker. That's why ppl trade commodity in the futures market not in the spot market.
No, I don’t want to trade futures. I want to buy and hold “oil” for a few months. The sticker price I see is $10 (was $20 only a few days ago). I think (or thought) I could sell it for $30 in July. My problem is delivery and storage. Futures solves that but costs a lot. I’m discovering USO uses some of those futures to solve it in a different way (rolling). Neither is going to get me near the 200% ($30-10=20) gross profit potential.
Correct. You will pay $10 (the spot price, not the $28 futures price) now.
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Re: How to "invest" in oil?

Post by bovineplane »

DonIce wrote: Mon Apr 20, 2020 10:54 am I'm surprised no company has started a physical oil ETF. Most unleveraged gold ETFs hold physical gold. You could do the same with oil and charge the storage cost as the ER. It would track the long term price of oil much more closely than oil futures ETFs which are hugely affected by contango/backwardation.

In the current situation, if a company started such a fund they would probably get investment in the billions very quickly... businesses opportunity anyone?

If oil storage was easy/cheap, the price wouldn't be $10 barrel.
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Re: How to "invest" in oil?

Post by DonIce »

bovineplane wrote: Mon Apr 20, 2020 11:02 am
DonIce wrote: Mon Apr 20, 2020 10:54 am I'm surprised no company has started a physical oil ETF. Most unleveraged gold ETFs hold physical gold. You could do the same with oil and charge the storage cost as the ER. It would track the long term price of oil much more closely than oil futures ETFs which are hugely affected by contango/backwardation.

In the current situation, if a company started such a fund they would probably get investment in the billions very quickly... businesses opportunity anyone?

If oil storage was easy/cheap, the price wouldn't be $10 barrel.
There's a difference between price and cost. People who want to store oil are having to pay $10/barrel because all the storage is nearly full, and so oil storage can be sold at a premium.

But the operating cost of a storage facility is MUCH less than $10/barrel/month. Once you've built the capital infrastructure, it stands there for decades and can be used to store oil month after month. The actual cost to store it, for companies that own large storage facilities, is about $0.10-$0.50 per barrel per month.
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Re: How to "invest" in oil?

Post by gch »

DonIce wrote: Mon Apr 20, 2020 10:54 am I'm surprised no company has started a physical oil ETF. Most unleveraged gold ETFs hold physical gold. You could do the same with oil and charge the storage cost as the ER. It would track the long term price of oil much more closely than oil futures ETFs which are hugely affected by contango/backwardation.

In the current situation, if a company started such a fund they would probably get investment in the billions very quickly... businesses opportunity anyone?
Would you start the fund and buy rights to existing storage or start the fund and build your own storage facility?
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Re: How to "invest" in oil?

Post by DonIce »

gch wrote: Mon Apr 20, 2020 11:17 am
DonIce wrote: Mon Apr 20, 2020 10:54 am I'm surprised no company has started a physical oil ETF. Most unleveraged gold ETFs hold physical gold. You could do the same with oil and charge the storage cost as the ER. It would track the long term price of oil much more closely than oil futures ETFs which are hugely affected by contango/backwardation.

In the current situation, if a company started such a fund they would probably get investment in the billions very quickly... businesses opportunity anyone?
Would you start the fund and buy rights to existing storage or start the fund and build your own storage facility?
You'd have to build your own storage to get the ER low enough. Cause if you bought rights to existing storage the ER would be 600% given the current levels of contango.

Same as some gold ETFs have their own physical storage facilities that they own.

Obviously oil storage is a much much bigger / more expensive facility than a gold vault which is why it hasn't been done yet, but given the high level of interest that must now exist for owning investable physical oil...
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Re: How to "invest" in oil?

Post by Forester »

Tanker stock up over 10% today. They were already cheap without the oil storage catalyst https://www.cnbc.com/quotes/?symbol=STN ... hterm=stng
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Re: How to "invest" in oil?

Post by gch »

DonIce wrote: Mon Apr 20, 2020 11:21 am
gch wrote: Mon Apr 20, 2020 11:17 am
DonIce wrote: Mon Apr 20, 2020 10:54 am I'm surprised no company has started a physical oil ETF. Most unleveraged gold ETFs hold physical gold. You could do the same with oil and charge the storage cost as the ER. It would track the long term price of oil much more closely than oil futures ETFs which are hugely affected by contango/backwardation.

In the current situation, if a company started such a fund they would probably get investment in the billions very quickly... businesses opportunity anyone?
Would you start the fund and buy rights to existing storage or start the fund and build your own storage facility?
You'd have to build your own storage to get the ER low enough. Cause if you bought rights to existing storage the ER would be 600% given the current levels of contango.

Same as some gold ETFs have their own physical storage facilities that they own.

Obviously oil storage is a much much bigger / more expensive facility than a gold vault which is why it hasn't been done yet, but given the high level of interest that must now exist for owning investable physical oil...
If you built it, why would you sell it through an ETF and not straight to O&G traders/companies like what is currently done? Think If the curve ever went to backwardation or fracing was outlawed in the US and your ETF is worthless where you couldve sold all the rights to other companies for guaranteed profits.

You’d essentially be speculating that the investor ETF market would give you more money in the future than the trading companies would today which is just guessing you’re smarter and willing to take more risk than the traders.

There is a reason that I’ve never heard of a pipeline or storage facility being built without already having a good amount of it pre sold to anchor shippers and traders. The ETF idea could work, but you’d be risking a ton of cash to hope that the market doesn’t change significantly by the time you get it built in many years.
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Re: How to "invest" in oil?

Post by DonIce »

gch wrote: Mon Apr 20, 2020 11:33 am If you built it, why would you sell it through an ETF and not straight to O&G traders/companies like what is currently done? Think If the curve ever went to backwardation or fracing was outlawed in the US and your ETF is worthless where you couldve sold all the rights to other companies for guaranteed profits.

You’d essentially be speculating that the investor ETF market would give you more money in the future than the trading companies would today which is just guessing you’re smarter and willing to take more risk than the traders.

There is a reason that I’ve never heard of a pipeline or storage facility being built without already having a good amount of it pre sold to anchor shippers and traders. The ETF idea could work, but you’d be risking a ton of cash to hope that the market doesn’t change significantly by the time you get it built in many years.
Retail investors may be willing to pay more for an investment opportunity they've never had access to before, as compared to existing players in the market. The oil market constantly changes and certainly it's very unlikely that the current levels of contango would persist years from now. But you could still make a nice guaranteed fee from investors per barrel. And if for some reason investor demand was lower than you expected you could just sell your storage capacity in the contango market, so you wouldn't be left with a worthless empty facility.
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Re: How to "invest" in oil?

Post by gch »

DonIce wrote: Mon Apr 20, 2020 12:00 pm
gch wrote: Mon Apr 20, 2020 11:33 am If you built it, why would you sell it through an ETF and not straight to O&G traders/companies like what is currently done? Think If the curve ever went to backwardation or fracing was outlawed in the US and your ETF is worthless where you couldve sold all the rights to other companies for guaranteed profits.

You’d essentially be speculating that the investor ETF market would give you more money in the future than the trading companies would today which is just guessing you’re smarter and willing to take more risk than the traders.

There is a reason that I’ve never heard of a pipeline or storage facility being built without already having a good amount of it pre sold to anchor shippers and traders. The ETF idea could work, but you’d be risking a ton of cash to hope that the market doesn’t change significantly by the time you get it built in many years.
Retail investors may be willing to pay more for an investment opportunity they've never had access to before, as compared to existing players in the market. The oil market constantly changes and certainly it's very unlikely that the current levels of contango would persist years from now. But you could still make a nice guaranteed fee from investors per barrel. And if for some reason investor demand was lower than you expected you could just sell your storage capacity in the contango market, so you wouldn't be left with a worthless empty facility.
If retail investors are willing to pay more than the existing players then one would easily buy storage rights off existing players and turn that into an ETF rather than try and get retail investors to front billions over many years to build a new facility.
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Re: How to "invest" in oil?

Post by DonIce »

gch wrote: Mon Apr 20, 2020 12:19 pm If retail investors are willing to pay more than the existing players then one would easily buy storage rights off existing players and turn that into an ETF rather than try and get retail investors to front billions over many years to build a new facility.
Sorry, not more at this market moment where oil storage is going for over 100x what it normally goes for. Rather, more than the long term average price of oil storage, and at a nice consistent predictable monthly fee.
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Re: How to "invest" in oil?

Post by AZAttorney11 »

How much has the spot price of WTI declined since OP wanted to invest in oil three days ago?
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