Buying Oil - be careful with the Oil etfs
old title:
Buying Oil - why NOT to use the Oil etfs.
You may miss out on the first 50% of gains : Charts-on Advfn
==============================

(Many investors share a common misconception about how the rewarding the Oil etfs will be in an oil bull market):


more: http://maoxian.com/archive/using-etfs-to-t...e-price-of-oil/
(also look at: DIG, DUG, IEZ and HOU.t, HOD.t in Canada; OILB, in the UK)

Buying Oil - be careful with the Oil etfs

Many investors share a common misconception about how rewarding an investment the Oil etfs will be in a bull market for oil. Here's a recent discussion we had on GEI, my investor forum. I think it illustrates the common lack of understanding about the oil etfs actually work.

Many people are going to be disappointed if they fail to understand the impact of the present super contango upon future investment returns of these instruments. Here's a lightly-edited version of a discussion that took place in the last few days:

"Al":
I am bullish on oil at under $40, and have been looking to buy the dip soon.
I think there's alot of money to be made on Oil's rise, if we see it, by late 2009.

"Bob":
How do you go long oil at $40? Have you got a tanker to store it in?

Super Contango


Al:
I am talking about using one of the many oil ETFs that are available.

Bob:
You cannot truly "buy oil at $40" that way. You merely buy an etf whose price "relates" to Oil.
EXAMPLE:
Here's yesterday's Oil Futures Curve:
Feb.09 : $40.83
Jan.10 : $59.48
What sort of profit do you expect if oil hits $59.48 in Dec. (using the Jan10 contract as your price measure)?

Al:
For simplicity I am going to change those prices to $40 & $60, the difference between them is 50%.
So I might make 50%. Or using a 2x leveraged ETF that should be approaching 100%. Based upon
your real figures (for current futures prices) I would reckon at least 90%.

Bob:
Sorry - but that's not true.
Chances are: You will breakeven or lose money with USO, or one of the other oil etfs.
Here's why...

USO (to pick on the highest volume Oil etf) does not own any physical crude oil, it merely buys futures contracts...

The prices I have quoted above ARE THE CURRENT PRICES for WTI (as of xxx)
USO uses those contracts to hedge itself - and, since it must rolls its positions forward on a regular basis to prevent taking physical delivery, it is not easy to consistently do better than achieve the market prices.

Think of it as climbing a ladder. As each month goes by, USO sells one month's contract, and buys the next month forward. In the current market with its steep contango. there's a big premium to "roll forward" into the next available month. In other words, the space between the rungs is big, and it must pay up, to get onto the next month forward. In practice, management has some leeway, and they do not have to wait for the last days, or even the last month, to roll forward. But roll forward, they must, since they are not set up to take physical delivery.

Think about the impact this "rolling forward" behavior has upon USO's Net Asset Value.

Since USO has limited funds, when the the forward rungs in the price ladder are higher, it is going to have to buy only a smaller number of barrels each time that it rolls. So it might Buy March (at $46.07) and Sell Feb. (at $40.83)*. It is paying 12.8% more per barrel to roll, and so it will wind up owning 13% less oil, and there will be 13% less barrels backing each share of USO. This is why USO now trades at $32.37 per share, versus $40.83 per barrel for WTI. When it started, there was one barrel backing each share in USO. Now each USO share is backed by 0.703 barrels (using March's WTI price.) In addition, something that I am not factoring into these calculations is the cost of the transactions (small) and the administrative cost of running USO (not small.) That is why I say that you might even lose money with USO if the oil future curve stayed as it is now.

In an upwardly sloping "contango" market such as we have at present, the "barrels per share" backing for USO diminshes, while in a downwardly sloping "backwardated" market, the number of barrels backing each share will increase over time. Thus, in markets like this, it is perhaps better to buy shares of companies with oil "in the ground" so they do not need to pay the high forward premiums (which tend to be realted to storage costs.) Alternatively, to buy shares in companies whose valuation is historically associated with the oil price (like oil service stocks, and some other "oil-realted stocks" that I am following.)

Do you see why I buy "oil related" securities, rather than USO, the Oil etf ?

============
* Note:
WTI Futures Curve, "like a ladder"
---------------------
Feb. 2009 $40.83
Mar. 2009 $46.07
Apr. 2009 $49.11
May 2009 $51.21
Jun. 2009 $52.75
Jul. 2009 $54.13
Aug 2009 $55.22
Sep 2009 $56.17
Oct 2009 $57.04
Nov 2009 $57.87
Dec 2009 $58.69
Jan 2010 $59.48
======
source: http://www.nymex.com/lsco_fut_csf.aspx
Brent : https://www.theice.com/marketdata/reportcen...4&hubId=403

I think post #1 was me.
I was able to buy the Feb Oil contract at ~$40.
I saw then that there was enormous (what I thought was "contango") difference in the Mar, Apr.. etc prices. I did ask at the time what people thought may happen to this gap as we got near the Jan-16th end-date for "Brent crude Feb09".
I could see then that Mar-09 was trading $2 above Feb.

This, I suppose is why shell are storing oil in tankers etc. Contango.

STORAGE IS FULL everywhere.

Which is why the price tends to dive as it approaches spot.
People understand that oil looks "cheap", and they like to have a medium or longer term
oil price exposure, but when it comes to "spot", there's a big glut of physical oil everywhere.

Here's the historical RATIO of USO -to- WTI:
It tells us when the market was in Contango (ie upward sloping), and when it was in Backwardation
(ie oil is cheaper in the future,)

WTI Crude

Major Oil Co's (XLE) to WTI ratio


Notice that the market shifted from Contango to Backwardation in Q3.2007, as oil prices shot
up through $70. Where's the long term price now??

Dec.2009: $58.69
Dec.2010: $65,86
Dec.2011: $69.37
Dec.2012: $71.64
Dec.2013: $73.76 - this is about HALF the July 2008 high of $146 !
Dec.2014: $75.37
Dec.2015: $76.92
Dec.2016: $78.23

Also, Notice that the XLE-to-WTI ratio shot up as crude fell below $70. I reckon that the oil shares are being priced off the long term price of crude rather than the spot oil price.

I'm very confused now. What is a good way to invest about 5K on black gold for 2 years.
An oil related security will be effected by the downturn in the stock market wont it? E.G. Exon or BP?

I'd like to wait till the next black [insert weekday] and buy then. But if I wait too long sterling will be worth not much but I'm lookng at diversifying and dont want

L.
Check out the XLE-to-WTI chart & comment that I have added (above) since your post:

"Also, Notice that the XLE-to-WTI ratio shot up as crude fell below $70.
I reckon that the oil shares are being priced off the long term price of crude rather than the spot oil price."

The Ratio of OIH-to-WTI Crude is tighter:


Month----: WTI-- : Ratio= using OIH of 79.23
Feb. 2009 $40.83 : 1.94
Mar. 2009 $46.07 : 1.72
Apr. 2009 $49.11
May 2009 $51.21
Jun. 2009 $52.75 : 1.50
Jul. 2009 $54.13
Aug 2009 $55.22
Sep 2009 $56.17 : 1.41
Oct 2009 $57.04
Nov 2009 $57.87
Dec 2009 $58.69 : 1.35
Jan 2010 $59.48 : 1.33

Thanks for this Bubb. Is there an ETF of oil companies, for those of us with insufficient funds to diversify economically?

(or perhaps an Investment Co is better?)

Thanks, for pointing this out DrBubb. It was something I was starting to work out for myself after my short dabble in LOIL recently.

After holding LOIL for around a month, I sold out for a small profit (15%) and realised that it was not as straight forward as it seemed. You will note that I made a post mentioning that I thought LOIL should only be used for short term trading, rather than long term holding. This is due to the losses you make with the current contango situation.

I have decided that holding OIL EFTs is not a way to make money for the long term. I would welcome any of your knowledge on how to benefit from the current oil situation.

Cross posting. While you sent the last one Dr B, I had look at these

Inpex looks good after falling 12% last week.

Chevron Corp went down too.
http://finance.google.com/finance?q=NYSE:CVX

BP down
http://finance.google.com/finance?q=NYSE:BP

Total down
http://finance.google.com/finance?q=NYSE:TOT

There's a lot of them. I'll try a pick and mix approach.

The etf for the Major Oil Co's is XLE - the one I used in the chart above.

I prefer using Oil Service etf / OIH, or one of its components- see chart etc. above.
I am adding some ratios to the WTI strip of contracts.

From above:
Jun. 2009 $52.75 : 1.50

If you buy OIH at $79.23 and hold until May, it will be like buying Crude ar $52.75 and
a Ratio to OIH of only 1.50 - that's cheap ! Look at the Chart for the Ratio.

So you see, that's how I look at it. I think OIH is an Oil-related exposure, which is substantially cheaper
than Crude. Because although you can buy spot crude at about $40 now, there's no way (for the average
person) to store it. And you will find you have to roll it, at a higher and higher cost.

(from the OIH Signal thread):

OIH stocks may be a good BUY on Monday, if it can hold OIH-75. : OIH-10d-chart

Friday's action was:
OIH: 79.23 Change: -5.22
Open: 84.00 High: 84.25 Low: 78.67
Volume: 10,648,000
Percent Change: -6.18%

Friday's low may be good enough. Click on chart, above

The larger components are: (at 3/2007 were):
SLB / Schlumberger : 10.41%
RIG / Transocean.... : 10.08%
HAL / Halliburton....... : 9.52%
BHI / Baker Hughes... : 9.52%
GSF / ...................... : 8.44%
DO / Diamond Offsh... : 6.10%
NE / Noble Corp........ : 5.93%

Thanks, I'll consider those.

Does this apply to oilb as well?

Thanks for all the advice.

All the components appear to be approaching GIP points, am I correct in thinking that?

I cannot buy OIH within my ISA in the UK, so am thinking I may take stab at some of the components. Any in particular you like?

i will let you know when i finish my research.
i made a nice profit already, trading calls on BHI from my Nov. Call on the "oil low" thread.
(right now, id be inclined to use BHI again or maybe DO)

Here's a useful recent posting from that thread:



YES, that's it. And maybe in these circumstances:

+ If you want to trade a very brief upswing in the price, or
+ If you want to short it in a contango market, since USO should slide it WTI trades sideways long enough

I am look at a strategy where I go long OIH (or maybe calls on OIH) and go short USO (or buy puts.)
I reckon that has a good chance of making money on a 3 month to 12 months time horizon.
But I want to do more research before pulling the trigger on this.

Sure. Although I think the contango in Brent is somewhat less steep,
since the spot price is higher.

I want to look at the Ratios between the various Oil etfs

(More later)

Here's an interesting segment from the Joe Dancy article on "super contango":

..

"A contango condition is not the normal situation in the futures markets. Normally prices in the future are lower than the current price (a condition known as ‘backwardization’ and is illustrated by the ‘one year ago’ line on the chart). And a ‘super contango’ (illustrated by the ‘yesterday’ line on the chart) where the spot market price is substantially lower than the price 12 months in the future is a very unusual event.

The super contango is most likely being fueled by the credit crisis and the need of companies to produce as much product as they physically can to generate cash. The contango situation would normally create an incentive to delay production to a future date, and generally supports upward pressure on short term prices as such production is delayed.

This condition has lead some larger companies to charter large crude oil carriers to use as storage facilities. Buying oil at spot ($42 a barrel roughly) while selling 12 month futures simultaneously (at $60 a barrel) yields a profit even after the cost of the charter and storage."

== ==

HOW DO YOU GET OUT of a contango situation?

Oil co's have a huge incentive to DELAY PRODUCTION, and eventually they will do that.
The new oil being delivered into spot will decline, and all that oil in storage will start to be consumed.
Until we see that, there is likely to be a "dive in price" as each oil future contract approaches spot.

It was looking relatively straight forward the other day - now I'm not so sure. Perhaps I'll still put a small amount into the $ denominated oil EFT to see what happens and to learn.

I would suggest:
+ Use DBO rather that USO or OIL*
+ Maybe: cut you investment in Half, and put the other half into OIH, which I expect will do better**

*For some reason, DBO has outperformed the other two, since oil moved into contango.

DBO vs. USO, OIL ... update : **DBO vs. USO, OIL, OIH

I can't see any suitable ETF's for the UK investor, at least not with the broker I am with

For anyone with a Selftrade ISA these are some of the oil or oil related stocks which DrBubb has mentioned before (and a couple of other ones) which are tradeable online:

BHI Baker Hughes
DVN Devon Energy
HAL Halliburton
SLB Schlumberger
PGF.U Pengrowth Energy
PWT.U Penn West Energy

FWIW, if you do not find a stock or ETF listed after searching ST's database give them a ring as they will deal if as a result of your call they find the stock is crest settled.

This link : http://tinyurl.com/9tswfn
Will take you straight into a Stockcharts chart for BHI with my favorite settings pre-set.

If you put "BHI:$WTIC" into the window, you will get a chart showing the Ratio of BHI-to-WTI Crude.

Change the BHI to "OIH" or one of the other stocks, and you can get their ratios too.

I'm reviewing my position in OILB as a result of this thread and was concerned that the value over time would be eroded away by the cost of rolling on to the next contract every month.

However having checked the price of Crude Continuous (on www.timingcharts.com) the closing price of Crude on 10 October 2007 was 81.30. OILB price on the same date was 63 (approx)

Crude continuous closing price on 9 January 2009 was 40.83. OILB was 32.88.

So during the same period the price of Crude has halved and the price of OILB has halved. So there doesn't appear to be a loss due to rolling to the next contract each month. I had thought that the ETF would be managed in such a way as to minimise loss during roll over, ie selling the front month at what looks like good point, then when the next month falls locking into that at the most cost effective point possible.

Am I missing something here? Is it just that the difference between months is less pronounced with Brent as opposed to WTI therefore the traders managing the fund can minimise losses?

I am going to clean this up, with the idea of using it as an article for FSU,
and maybe for SeekingAlpha

You need to compare it with Brent, which has dropped alot less than WTI Crude,
and also know something about management's "rolling strategy"

WoW

Feb Nymex crude (CFD) currently trading at $36.30

thats nuts

Unfortunately, there's a big glut in the spot market, with alot of extra oil in storage
to be absorbed

This is a very useful thread, especially as I just (finally!) got and sent off the ID needed to get a Selftrade account up & running. Now is definitely the time to be thinking hard... though I'll hardly be betting the farm. It's more of a hanging basket.

Andrew McP

It just up now on FSU:
http://www.financialsense.com/fsu/editorials/2009/0115.html

ooks like it needs a chart or something

Got it, thanks. Brent has come down approx 37%, the OILB ETF is down 50% in the same period. I need to find better sites where I can get accurate prices on specific dates though.

Try Stockcharts.com

Where Puts = Calls

ETF : Spot- : Feb07 : Mar07 : Apr07 xxx : Jan10 : Jan11
OIH : 71.71 : =====: =====: ==== xxxx: =====: 71.25

(Jan/11)
75.0c 20.70-21.65 : 21.30 // 75.0p 24.75-25.15 : 24.95
72.5c ==== ==== : 22.20 // 72.5p ==== ==== : 23.45
71.25 ==== ==== : 22.65 // 71.25 ==== ==== : 22.70 ==
70.0c 22.65-23.60 : 23.10 // 70.0c 21.75-22.15 : 21.95

ETF : Spot- : Feb07 : Mar07 : Apr07 xxx : Jan10 : Jan11
USO: 30.09 : =====: =====: ==== xxxx: =====: 31.75

(Jan/11)
35.0c 08.50-09.40 : 08.95 // 35.0p 12.60-13.10 : 12.85
32.5c ==== ==== : 09.90 // 32.5p ==== ==== : 11.25
31.75 ==== ==== : 10.35 // 31.75 ==== ==== : 10.45
30.0c 10.50-11.10 : 10.80 // 30.0c 09.40-09.90 : 09.65

http://bigcharts.marketwatch.com/quickchar...rs=5&bars=6

Hopefully I'm reading the technicals right because I became sorely tempted myself to grab a piece of the action with a looming double-bottom in crude prices. Not sure of my own 'turn' signal on MA Crossovers which appear to be a way off, RSI not particularly being indicative one-way or another.

Resigned myself to adopting wait-and-see, just when you think it can't go lower it does.

I stuck my toe in oil today - see the DrB Diary

Where Puts = Calls

ETF : Spot- : Feb07 : Mar07 : Apr07 xxx : Jan10 : Jan11
OIH : 71.71 : =====: =====: ==== xxxx: =====: 71.25

(Jan/11)
75.0c 20.70-21.65 : 21.30 // 75.0p 24.75-25.15 : 24.95
72.5c ==== ==== : 22.20 // 72.5p ==== ==== : 23.45
71.25 ==== ==== : 22.65 // 71.25 ==== ==== : 22.70 ==
70.0c 22.65-23.60 : 23.10 // 70.0c 21.75-22.15 : 21.95

ETF : Spot- : Feb07 : Mar07 : Apr07 xxx : Jan10 : Jan11
USO: 30.09 : =====: =====: ==== xxxx: =====: 31.75

(Jan/11)
35.0c 08.50-09.40 : 08.95 // 35.0p 12.60-13.10 : 12.85
32.5c ==== ==== : 09.90 // 32.5p ==== ==== : 11.25
31.75 ==== ==== : 10.35 // 31.75 ==== ==== : 10.45
30.0c 10.50-11.10 : 10.80 // 30.0c 09.40-09.90 : 09.65


Dr Bubb, are you suggesting this could indicate a turn in sentiment?

Also, what are your thoughts on the put/call ratio as a tool? From what I've read so far, it could be useful in suggesting tops and bottoms. My broker is thinkorswim, the platform is great, but it doesn't have functionality that allows charting the put/call ratio over time. Do you know of any sites/platforms that might provide this?

I was juts parking some price data there so I could look at it later.
I will try to explain this data a little in a subsequent post.

Have a look at my comments on the DrB Diary thread, and you may see why I think Oil may be bottoming.
Basically, the recent price weakness has been limited to WTI, and that is partly driven by the expiration of the
February contract, which disappeared yesterday. Other oil prices were holding

Here is what I am experimenting with : the OIH-to-WTI ratio.
By going out so far, I get a "cheaper" ratio than if I had stuck with a nearby Call.
Here's a comparison:

Month : Strike + Call Cost = Breakeven
July'09 $60 c. + $ 19.00 = $ 79.00
Jan.'10 $55 c. + $ 25.20 = $ 80.20

RATIOS : OIH / WTI
=====
Month : -WTI- : Brent : (W-Br) : OIH$71 : OIH$80 : OIH$79
Mar.09: 40.84 : 43.62 : ($2.82) : R - 1.74 : R - 1.96 : R - 1.93
Apr.09: 44.25 : 45.43 : ($1.18) : R - 1.60 : R - 1.81 : R - 1.79
May.09 46.56 : 47.13 : ($0.57) : R - 1.52 : R - 1.72 : R - 1.70
Jun.09: 48.28 : 48.65 : ($0.37) : R - 1.47 : R - 1.66 : R - 1.64
Sep.09 : 51.51 : 51.57 : ($0.06) : R - 1.38 : R - 1.55
Dec.09 : 54.13 : 53.98 :+$0.15 : R - 1.31 : R - 1.48
Jan.10 : 54.93 : 54.77 : +$0.16 : R - 1.29 : R - 1.46
Feb.10 : 55.71 : 55.51 :+$0.20 : R - 1.27 : R - 1.44

Source : WTI Closing prices

By purchasing the Jan.2010 call, I locked-in a price for OIH which yields a Ratio of 1.46 off the Jan.2010 WTI price. If and when I expect that WTI is ready to fall, I can short the Jan.2010 or Feb.2010 WTI contract, or alternatively, sell the USO etf, or buy a put on USO. The combination: a Call on OIH, and a short on Oil, would lock in an attractive OIH/WTI ratio.

Where has this ratio been ?

OIH-to-WTI Ratio : update


Buying this Ratio near 1.45 looks a fairly safe bet on the basis of the historical comparisons.
Recall that I am doing this because it is impossible to buy oil "below $40" except on very short term basis.
Even if I had a tanker to store it in, it would be expensive to maintain it there.

How contango affects oil ETFs
Posted by Izabella Kaminska on Jan 22 09:07.

Hat tip to Abnormal Returns which draws attention to this oil post on Market Folly.com.

The Market Folly piece highlights why retail investors should most definitely be interested in the forward oil curve, and specifically whether it is in contango or not.
As the post explains, the performance of a fund like the US oil fund (USO) is largely dependent on three variables:
1) changes in the spot price of crude oil,
2) interest income on un-invested cash, and
3) the ‘roll yield’.

While the first two are easily understood by the retail investor, the roll yield is more troubling. Of course, when the market is in contango an index investor can lose irrespective of whether price moves at “face value” appear favourable. As you have to pay a premium to move into the ensuing monthly contract, a profit can only be achieved if the positive price moves are greater than the losses generated by the roll itself (the premium paid to remain in the position).

So while to many retail investors the low price of oil may look like an attractive buying opportunity, the current state of the market means, more than likely, they will generate a loss just because of the roll.

Consequently, a fund like the USO is not a good proxy for an oil-price position. As the Market Folly post explains (our emphasis):

The conclusion, at this stage of analysis, is that USO is not a direct play on the spot price of crude oil - it is, instead, a play on the spot price, forward prices, and the relationship between spot and forward (the slop of the futures curve). For a trader who is long USO, my instinct is that maintenance or aggravation of the contango in crude oil will cause impairment of the value of USO in relation to spot crude - whereas, any mitigation of the contango situation (including a shift to a flatter curve or backwardation) will enhance the performance of USO. I plan to study this issue more extensively. But, in the mean time, I will not consider USO to be a good proxy for the spot price of crude oil - and I will be particularly leery of participating in USO for anything other than a short term trade.”

And yet, investment in USO continues to grow. As Olivier Jakob at Petromatrix explained just a few weeks ago:

The size of investment in the ETF has recently grown to such a high level that it will need to roll in one day more than the GSCI in two days; and we do not think that the managers of the USO have the practical experience of rolling such a large position. Given the high Cushing stocks, the USO roll tomorrow to be followed by the GSCI roll and 2009 rebalancing, we would favor having any WTI length on March rather than Feb.

Interpretation? Retail investors are clearly not understanding the contango.

What’s more investors in the USO fund are potentially being doubly hurt; not only is the fund already faced with an uphill struggle of rolling a sizable position into a contango curve, it has chosen to do so all in one day with everyone knowing exactly the day it is doing so. That is not a good position for investors. To compare, both the S&P GSCI and recently UBS-taken-over AIG index roll over a number of days.

While Tuesday’s Nymex WTI roll from the February to the March contract may have seen the contango flatten a touch, it is still significant. Anyone interested can track it here on the Nymex website.

Related links:
Energy forward curves are tricky for Bloomberg - FT Alphaville
How contango affects crude oil ETFs - Market Folly

/see: http://ftalphaville.ft.com/blog/2009/01/22...fects-oil-etfs/

The powershares offerings look like better tracking tools:


http://www.powersharesetns.com/products/crudeoil/

http://www.dbfunds.db.com/Notes/OIL/index.aspx

The DXO is currently using the July 09 crude contract CLN09 settled on 20th June.

Being a "note" one should be aware that the counterparty risk is with Deutsche Bank.

Goldmans have copied your opinion

Funny I just found that while reading ft aplhaville and came here to post it, as it made the point very clearly ithat you DrB earlier on this thread.

I found it however via this which is also interesting

http://ftalphaville.ft.com/blog/2009/02/18...he-oil-markets/

Olivier Jakob at Petromatrix has commendably taken a strong stance against the USO ETF fund over the last few weeks, or rather, exposed to what degree the fund’s market inexperience is causing all sorts of mayhem for the WTI contract. All of this, he says, is because the fund has now achieved ‘’critical mass’.

Unsurprisingly, his Wednesday note shows a similarly strong view:
Despite the flat price weakness on crude oil, the contango on the expiring spread continues to narrow, in a pattern very similar to the previous expiry. The convergence of the expiring contract is now being done pre-expiry on a narrowing of the spread rather than post-expiry on a flat price basis. This re-enforces our view that the extreme contango on the WTI contract is primarily due to market distortions created by the USO WTI ETF. This cancer to the oil markets is however not yet over as positions in the USO were increased further yesterday and now reach 93′000 WTI April Futures contract.

Read in first on Petromatrix: in our weekly note of Feb 9th we advised that passive investors ought to be overweight oil equities/underweight the WTI ETF. Goldman Sachs has put out this week a research note advising clients to be overweight commodity equities/underweight the commodity, but they are not yet mentioning the distortions created by the ETF on the WTI markets. In a separate note, Goldman has advised taking profit on the short flat price at the back of the curve and turning instead to buying the long dated spreads Dec9/Dec11

I would like a little (probably medium- to long-term) exposure to oil, and I have been considering doing so via the OILB ETF. Given the small amount of money involved at this stage, it doesn't really make sense to buy more than one 'stock' because of how much would be lost in trading costs.

I've read this thread a couple of times, but I'm floundering a little.

I suppose the key questions is, if I do want a little exposure to oil, is there really any sensible alternative to OILB (or similar ETF)?

Try PennWest energy trust (PWT.UN, PWE). Casey research recommending it as 12-18mth alternative to oil jnrs or ETFs, as long as oil stays <$70

AFAIK Dr Bubb has been trading PWE calls (see Diary thread)

Does this mean that the low spot price and higher price in the future is due to ETFs buying at the low level and then buying lots of next months positions just before the current positions come to a close. Rather than following the market the ETFs are altering it.

It could well be

Back when oil topped out at $150 ish, there was also suggestion that the market had got skewed by spread betting firms and the like trying to hedge their short term bets by buying long term crude delivery contracts.

??
The market worked this way (big contango in a glut situation)
before the Etf was created

It's a shame about the super contango rendering the long ETFs pretty useless. I liked them because they are not correlated to the equities market and being bullish on oil but afraid of another decline in stocks I can't get any safe exposure to the price. I can't imagine the stocks not getting caught up in a big sell off, unless I'm missing something.

Anyone observed how well the powershares optimum yield ETN's I mentioned earlier on track the price?

IT WORKED AS EXPECTED - ratio of USO to WTI slid sharply

Here's a look at the charts

: USO-to-WTI Crude Ratio ...................................................... : USO-to-OIH Ratio ...................................................... :
...

Nice move down in USO and Crude yesterday /Monday:
USO : $36.25 -1.72 / Pct Chg: -4.53%
WTI : $67.50 -2.52 / Pct chg: -3.60%

bumping this up.

I've been sitting on my hands this summer but would greatly appreciate an update of the current thinking on mid-long exposure in this market. I see that it's < $70 again today.