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Started: Gaz_Marsden, 30 Apr 2020 08:10
Last post: Gaz_Marsden, 2 May 2020 07:32
Nevermind
So I have traded shares for years.
Having to sign the sophisticated products form to trade this has made me think am I missing something.
Why would $5k @ $2 not return $Ā£10k at $4 when prices recover?
Started: JNix, 20 Apr 2020 17:07
Last post: Fredr, 22 Apr 2020 13:48
Well thanks for your explanation. I understand a bit more now! Complex instruments and probably best left to those who know whats going on. Could well be in for a long period of low prices it seems. At least CRUD is not leveraged 2x, 3x and even 5x like some of the oil ETFs. Longs and shorts. Deadly if you get it wrong! GLA
Fredr, youāre right this ETF does in fact track the performance of the bloomberg index well, but the bloomberg index ābakes inā the impact of negative roll yield so the index in itself isnāt trackIng the wti spot price 1:1.
Itās clearly a very unique set of circumstances at the moment given the āSuper Contangoā but the best way of understanding It for those that are new to this concept is:
If i invested 1000 USD in the index today at a spot price of 20 USD then Iām gaining exposure to 50 barrels. However the ETF isnāt actually going to take delivery of 50 barrels and keep them in a vault for me, so they take my money and generally buy next months futures contract. This way they actually have an cashflow stream to pay out any gains. The issue is that if the futures contract expiring were 10 USD (for ease of Maths) and the next months was 20 USD then the roll loses 10USD per barrel, so my 50 barrels exposure turns into 25 immediately whilst the spot price is still 20USD i.e. 50% loss. Clearly this is an extreme scenario and the expectation would be that the ETF fund manager would do as best as they could to mitigate this risk but you get the idea, all of a sudden my break even is 40USD per barrel.
Unfortunately it looks like this trend will continue (just look at the delta between the June contract and July contract at the minute) which is due to the market pricing in a relatively quick recovery in demand and seeing this as a somewhat short term storage issue driving down short term prices.
The best time to invest to reduce the impact of a super contango will be when the futures prices settle into a more normal pattern (i.e. slightly more expensive the further out you go to take account of the incremental storage costs over a longer hold period). Bizarrely this point may come at a higher price to the current spot price - if itās lower than current spot prices that will most likely come at a point where the market realises that this isnāt going to be a quick demand recovery but a long deep recession. For me thatās the time to buy, but I donāt see that scenario until maybe August once the dust has settled and real economic data is out.
Iām not saying itās impossible to make money at the minute in here, but its a gamble (needs big news rather than fundamentals) and people need to understand the risks they could be sleepwalking into..
As far as I see, CRUD tracks this: https://www.bloomberg.com/quote/BCOMCLTR:IND (A basket of WTI futures contracts) It seems to track quite accurately as well.
Also this site shows prices for futures contracts https://www.barchart.com/futures/quotes/CL*0/futures-prices
I bought here the other day thinking it was impossible that POO could stay this low. How wrong I was! Escaped with a 5% loss, but still tempted to take a position for the future. When the madness is over it will surely bounce back. The worry is you could have a repeat performance when the June contracts come up for expiry i.e go negative!
Great post. How does one know when roll over date is for CRUD?
I've been looking at the best way to go long on oil and like many here was about to pile in here until I read about negative roll yield. You could be blindly walking into a 30%+ loss overnight here once futures contract roll over which has put me off for now - this isn't as simple as riding the oil price back up to $50.
This is from ETF.com;
"Pitfalls Of Oil ETFs
Itās fair to say that at some point in the next few years, oil prices will be back over $40 at leastādouble from here. Investors may look at that and see a juicy opportunity to double their money, but itās not that easy.
ETFs are some of the best tools to get exposure to oil and the broader energy space, but even with them, there are many pitfalls that investors face.
For one, itās not possible to get one-for-one exposure to spot oil prices. Even if you had access to storage tanks and could hold oil there for a couple of years, it would be exceedingly expensive in the current environment, when capacity is so scarce.
In an ETF wrapper, the closest thing to that are funds that hold oil futures, such as the United States Oil Fund LP (USO) , but they face a similar dilemma. Futures contracts must be rolled from month to month, leading to substantial roll costs. Those roll costs are even higher than normal today, a reflection of the premium cost of storing physical barrels.
For example, as of this writing (16 April2020), crude oil for June delivery was trading at a whopping 20% premium to crude oil for May delivery. Rolling from the May to the June contract would net you 20% fewer contracts in just one month.
Thatās why an investor cannot simply buy USO today with oil at $20 and expect to generate a return of 100% if and when oil prices go back to $40. Actual returns will be dramatically less than that.
Moreover, if oil prices continue to slide in the short term, USO could tumble much further from here before it rebounds, leading to steep losses that will be difficult or nearly impossible to make up."
Be careful
Started: Phoebus, 20 Apr 2020 14:24
Last post: Phoebus, 20 Apr 2020 14:54
Like me it's sounds like you're looking for the best way to play the crash in WTI and Brent. I'm thinking this plus a selection of junior producers and perhaps the producer basket SPOG. TLW, PMO, RRE, ENQ seem to rebound quickly and there is always BP. and RSDA. I think it's options expiry today so I'm expecting WTI to rally big time after the European close, but who knows. Virus may have a long way to run yet.
I am no expert on this, only bought ETFs once before, but this little snippet was in todays IC news letter for what it's worth. 'Oil prices for the near (May) contract have tumbled. WTI sunk under $15 for the first time in 21 years, but the May contract is not really where the action is. All the volume has moved into the June contract as the May contract expires tomorrow. This has created a super contango in the two closest months that is the largest I can recall. June is trading almost $10 higher at a little under $24.
Make of it what you will! I just can't see prices staying this low for long, Economies will be getting wrecked world wide!
Wow. First post on here answered very quickly. Nice one. I'm seriously considering buying in too. Given this is a basket of various dated futures contracts I guess it could still drop if front month rises and following months still drop. Of all the LSE listed ETFs this seems to be the one that most closely tracks the front month WTI price action and its certainly very liquid with a large capitalization. I'm also looking at SPOG as a basket of large cap oil producers.
Well I hope so ...just bought 2500 ETFs. Some big money moving in and out here judging by the trades. Cost is about 230p in GBP.
a recovery in the price of WTI from historic lows?