Oil

[GRG55]

Re: Oil

...Also, I like LINE a lot. It is not a pipeline, it is an oil producer
100% hedged forward for three years with a high dividend.

If anyone is planning to buy "oil" on the premise of Ka-Poom theory [an inflationary Poom phase about to get underway], you will want to avoid those entities that are hedged.

[GRG55]

Re: Oil

I'm still watching the various ETFs vs. the underlying to get a sense of relative performance.

Frankly none of them are very impressive so far (i.e. consistent with theme vs. underlying).

The other concern I have is that a significant reversal of the contango could actually drive the price of oil much lower for a time.

As has been mentioned elsewhere, a reversal of contango could mean a dump of significant stored oil supplies on the market all at once.

Having oil at $20 is not going to be fun if you've put a lot of money there.

Looks like the contango is reversing more from a rise in spot/near month than a collapse of the out month prices. If a "selling avalanche" was going to occur, it normally would have already happened...in other words it would have been the reason for the reversal of the contango. The risks of a price collapse are declining [by no means zero, however!]

[ax]

Re: Oil

Looks like the contango is reversing more from a rise in spot/near month than a collapse of the out month prices. If a "selling avalanche" was going to occur, it normally would have already happened...in other words it would have been the reason for the reversal of the contango. The risks of a price collapse are declining [by no means zero, however!]

GRG, value your opinions in these matters, especially commodities assessments. From reading the leveraged ETF materials, seems contango works against prices in the short-term as the purchase of futures contracts at higher prices negates current relative value. Does that seem right?

[GRG55]

Re: Oil

GRG, value your opinions in these matters, especially commodities assessments. From reading the leveraged ETF materials, seems contango works against prices in the short-term as the purchase of futures contracts at higher prices negates current relative value. Does that seem right?

These are anything but "normal" times. Usually a contango occurs when there is either the perception of near term glut [which depresses the spot/near month price compared to the out months] or the perception of future supply shortage [which raises the bid for delivery in the out months/years]. Seems there was plenty of the former as the global economy fell over, and "demand destruction" became the mantra. Once the money making opportunity presented itself to the speculators they gamed it for all it was worth, promoting stories of an oil glut complete with loaded tankers "wandering aimlessly about the oceans" to keep the spot depressed for as long as possible. Some of the oil ETFs were among the losers.

Perhaps what we are seeing now with the pop in spot price is just the usual consequences of a short squeeze, which will no doubt be followed by another drop after Goldman and Co. put on their next set of short positions. Volatility will continue to be the order of the day I expect.

I find it interesting that the selling avalanche [in the out months] that usually corrects a persistent contango did not happen this time. That is a divergence that is important, and lends more confidence that, below the surface, the incredible supply chain destruction and the outlook for the US Dollar exchange rate would suggest an ultimately constructive outcome for oil reserves holders.

Here's another casualty in this most capital intensive of industries:

Kuwait state refiner cancels $15 bln project
Fri Mar 20, 2009 9:19pm IST

KUWAIT, March 20 (Reuters) - Kuwait state refiner Kuwait National Petroleum Co (KNPC) said on Friday it had cancelled a $15 billion oil refinery project and had informed the companies awarded contracts.

The project had face parliamentary opposition, and is the second multibillion-dollar oil project to be scrapped in Kuwait in about three months...

[Basil]

Re: Oil

These are anything but "normal" times. Usually a contango occurs when there is either the perception of near term glut [which depresses the spot/near month price compared to the out months] or the perception of future supply shortage [which raises the bid for delivery in the out months/years]. Seems there was plenty of the former as the global economy fell over, and "demand destruction" became the mantra. Once the money making opportunity presented itself to the speculators they gamed it for all it was worth, promoting stories of an oil glut complete with loaded tankers "wandering aimlessly about the oceans" to keep the spot depressed for as long as possible. Some of the oil ETFs were among the losers.

Perhaps what we are seeing now with the pop in spot price is just the usual consequences of a short squeeze, which will no doubt be followed by another drop after Goldman and Co. put on their next set of short positions. Volatility will continue to be the order of the day I expect.

I find it interesting that the selling avalanche [in the out months] that usually corrects a persistent contango did not happen this time. That is a divergence that is important, and lends more confidence that, below the surface, the incredible supply chain destruction and the outlook for the US Dollar exchange rate would suggest an ultimately constructive outcome for oil reserves holders.

Here's another casualty in this most capital intensive of industries:

Kuwait state refiner cancels $15 bln project
Fri Mar 20, 2009 9:19pm IST

KUWAIT, March 20 (Reuters) - Kuwait state refiner Kuwait National Petroleum Co (KNPC) said on Friday it had cancelled a $15 billion oil refinery project and had informed the companies awarded contracts.

The project had face parliamentary opposition, and is the second multibillion-dollar oil project to be scrapped in Kuwait in about three months...

GRG,

I value your input on these matters and wonder if you would be willing to let us know where you put your money as regards such matters. Not that I would follow you, but just one more piece of overall information. Personally, I have been watching the contango closely and have recently decided that risk is minimal enough to start wading back in to oil oriented investments.

If you wish to keep your own investments int his area to yourself, I understand.

Thanks,

Basil

[Sharky]

Re: Oil

A sudden contango in a market that's normally in backwardation used to be considered a sign of excessive speculation.

That makes me wonder whether investment vehicles like USO might be not just the victims of the contango, but also its cause....

[GRG55]

Re: Oil

A sudden contango in a market that's normally in backwardation used to be considered a sign of excessive speculation.

That makes me wonder whether investment vehicles like USO might be not just the victims of the contango, but also its cause....

I am not intimately familiar with USO or the various other oil ETFs, but I was under the impression that most of them are passive holders of the forward month contract and just roll it over each month as it approaches expiry [Moe Gamble's interesting note on selected exceptions to this was informative, thanks!]. If so I can't see how that would, in itself, create a sustained contango across the whole curve.

[GRG55]

Re: Oil

GRG,

I value your input on these matters and wonder if you would be willing to let us know where you put your money as regards such matters. Not that I would follow you, but just one more piece of overall information. Personally, I have been watching the contango closely and have recently decided that risk is minimal enough to start wading back in to oil oriented investments.

If you wish to keep your own investments int his area to yourself, I understand.

Thanks,

Basil

I'm actually mulling over this issue at the present. Once again these are not normal times, so the sorts of strategies I've employed in the past, including buying the producers hand over fist in early 1999, may not be as prudent in this environment. I'll try to share any brilliant thoughts I may have if any strike me.

One thing that has crossed my mind is that selected supermajors [yes, the same group that I have publicly maligned numerous times on this site] may be worth reconsidering. It might be as simple as holding a basket of Exxon, Chevron, Conoco, BP with maybe Shell and Total in the mix? Just a thought, but no more than that at this point!

[Sharky]

Re: Oil

I am not intimately familiar with USO or the various other oil ETFs, but I was under the impression that most of them are passive holders of the forward month contract and just roll it over each month as it approaches expiry [Moe Gamble's interesting note on selected exceptions to this was informative, thanks!]. If so I can't see how that would, in itself, create a sustained contango.

The idea is that the continued process of rolling-over contracts drives the contango -- selling near months and buying farther-out months.

You're right about USO, but other ETFs like DBE are not restricted to the first two months. And of course there are also large speculators like Glencore that buy and sell all months.

[Supercilious]

Re: Oil

On this forum the ETF/ETN thingie and the index slippage has been discussed to saturation, ... but it seems things are still not very clear.

If one want to play oil (expecting an increase in the oil price), IMHO the best idea is to short the most shaky and leveraged short ETN or ETF If things go really well one may profit way more than the increase of price.

Conversely if one bets on the decrease in oil price the safest and best solution is to short an ultra leveraged shaky long ETN /ETF.

Of course in reality things are a little bit more complicated, one has to find a shortable ETN or ETF (not all the crappy paper can be shorted), one has to pay attention to the NAV/Trading value ratio in order to enter the trade at the best point, and also keep an eye on the number of the outstanding shares, calculate the pair decay etc.

If properly done one may not only benefit from the fluctuation in the oil price but also play bank and pocket the slippage ;)... and if the shorted ETN or ETF goes bust , then.... it's X-mas in the month the bust occurs

[Boerg]

Re: Oil

If anyone is planning to buy "oil" on the premise of Ka-Poom theory [an inflationary Poom phase about to get underway], you will want to avoid those entities that are hedged.

Why????????????

[ASH]

Re: Oil

Why????????????

If you are a producer, and you are hedged, then I assume you are hedging against the price of oil going down. Maybe some substantial fraction of your future production is locked into longer-term delivery contracts at a fixed negotiated price. So if there's a sudden POOM, maybe you can't get out of these fixed-price delivery contracts, and so you can't sell all of your production at the sky-high new price.

[LargoWinch]

Re: Oil

On this forum the ETF/ETN thingie and the index slippage has been discussed to saturation, ... but it seems things are still not very clear.

If one want to play oil (expecting an increase in the oil price), IMHO the best idea is to short the most shaky and leveraged short ETN or ETF If things go really well one may profit way more than the increase of price.

Conversely if one bets on the decrease in oil price the safest and best solution is to short an ultra leveraged shaky long ETN /ETF.

Of course in reality things are a little bit more complicated, one has to find a shortable ETN or ETF (not all the crappy paper can be shorted), one has to pay attention to the NAV/Trading value ratio in order to enter the trade at the best point, and also keep an eye on the number of the outstanding shares, calculate the pair decay etc.

If properly done one may not only benefit from the fluctuation in the oil price but also play bank and pocket the slippage ;)... and if the shorted ETN or ETF goes bust , then.... it's X-mas in the month the bust occurs

You have a twisted mind symbols and I like it.

[FRED]

Thread closed

Oil thread continued in subscriber area here: Oil