Oil...Black gold....Is it time to go buy?

[twinturboz]

DoubleSix said:

Im afraid it's not that simple.

Oil ETFS, or ETCS as we should really call them, are based on derivitives. You are introducing many complications I shall not bore you with right now (perhaps read up on the effects of a contango market on ETCS).

As an example using the popular USO ETC:

Since USO launched in April 2006, it has returned -71 percent, while the spot price of oil returned -26 percent. The last time oil roared back from a bottom was in 2009, when it returned 78 percent on the year. USO returned just 14 percent.?


If you aren't aware of this stuff you should not be using the product imho.

I guess outside of spread betting or future contracts there isn't really a pure play stock or etf.
USO invests in front month contacts so will be more exposed to the contango effect, there are a few like USL which supposedly try to minimise the contango effect.

[Claudia Skies]

GT03ROB said:

I'm gonna stick to getting out of the ground & sticking it on tankers. What you lot get up to after that with your bears, flags, bulls, acronyms & other gobbledy gook is up to you!!

Yes indeed. I've "bought" and will await progress ...... in whatever direction!

[traxx]

twinturboz said:

I guess outside of spread betting or future contracts there isn't really a pure play stock or etf.
USO invests in front month contacts so will be more exposed to the contango effect, there are a few like USL which supposedly try to minimise the contango effect.

imo you are always best to trade the futures contract directly. Whats more unless you know the market or follow it all the time its probably best to avoid the front month contract and instead trade Dec-15 if all you want is flat price directional move. Certainly if you trade front month Brent or WTI (which for example are the only contracts currently offered by IG) you want to be really careful as you approach contract expiry.

Most of these commodity etfs have fundamental problems handling the shape of the curves. Whats more in the case of someone like USO they publish details of how they are going to roll the front month position - so surprise surprise the spread move against them at that time. So much "retail" money has flowed into front month WTI recently that it will interesting to see what happens as March approaches expiry.
These issues became famous a few years back after some published analysis of the Goldman GSCI index suggested that retail investors had lost billions just through the contract roll

I don't trade them but I've always heard that if you want an exposure via the equity route that some of the US Oil Royalty stocks have good correlations to oil or gas prices