How to buy oil?

[jjbrisbane99]

hi, i have been searching around but cant really find the best solution. Basically what i want to do is buy 100K in wti crude and then hold it for an unspecified time and sell it when i believe it is a good time. I have the cash so dont need to leverage but i have not really found a solution to do this. I have found the following ways but none are appropriate.
1. etf like ooo.ax but this does not represent the actual price of wti
2. options and futures - these have set times i need to exercise and i dont want that
3. cfd's but they are leveraged and a daily cost for holding?

Basically i am trying to buy now and sell it any time i want in the next 10 years.
thanks Jon

 

[basilio]

Ambitious idea. I think it falls over on the basic cost of storage.. You (or someone else) has to keep it somewhere. That takes space, costs money. I believe the holding costs will kill you.

 

[InsvestoBoy]

Unless you're going to go ahead and buy $100,000 worth of actual barrels of oil it doesn't work like that.

You can't buy oil financial products and not suffer the current super-contango structure of the futures curve.

What you see as the current price of oil, $20 or whatever, will soon be $27 when the current front month contract rolls into the June contract.

OOO.AX simply holds front month WTI futs and hedges away the FX exposure. On the NYSE is the equivalent USO (front month), and USL which holds 12 month WTI futs instead of front month.

These ETFs do represent the "price" of oil as represented by a total return of rolling futures, unlike what you might think is the price of WTI as represented by a cash/spot chart.

CFDs simply track the underlying WTI or Brent futures.

You can't escape the contango without taking cash delivery of actual oil.

You could always buy CLZ30, the WTI futures contract maturing in December 2030, currently trading at $34.47, representing the all in cost (storage, fees, interest rates, etc) of holding oil until 2030. The current Open Interest is 0 contracts, you'd be the first holder!

Grab a RV subscription and check out Harris Kuppermans thesis on oil tankers, you might like that as a better play. https://adventuresincapitalism.com/2020/03/29/talkin-tankers-with-real-vision/

 

[tech/a]

IB

Do you subscribe to Real Vision?

 

[jjbrisbane99]

thanks insvestoboy for the detailed response, so the etf would be the closest i would get to my goal? So in a nutshell broadly speaking if i buy ooo.ax today it effectively means i am paying $27 for wti and in say 5 years the front month futures price was $42 it would represent that same margin in the price of the etf?

 

[InsvestoBoy]

IB

Do you subscribe to Real Vision?

See here @tech/a, answered sam question recently https://www.aussiestockforums.com/posts/1067509/

I've been following Kuppy for a while (since he started doing appearances on The Market Huddle podcast) so don't need a current RV subscription to know about his tankers thesis

 

[InsvestoBoy]

thanks insvestoboy for the detailed response, so the etf would be the closest i would get to my goal? So in a nutshell broadly speaking if i buy ooo.ax today it effectively means i am paying $27 for wti and in say 5 years the front month futures price was $42 it would represent that same margin in the price of the etf?

You're not paying $27. You're paying $20 today and then when the May contract rolls the ETF manager will sell for $20 and buy fewer June contracts for $27 and then when June contract rolls off the ETF manager will roll into the Jul contract for $30 and so on, your investment getting cut down along the way. In 5 years the ETF manager will have rolled into the front month contract at a price close to $42 or whatever your example price is.

Read this
https://www.bloombergprep.com/blog-...go-why-the-shape-of-the-futures-curve-matters

See this chart, black is cash WTI, blue is USO, from 2009, another period of super-contango


If you really truly think you have a 10 year edge of some kind, buying CLZ30 honestly isn't a bad idea (liquidity constraints of far distant futures not withstanding), $34 represents something like (what the market believes) the all in cost for buying and storing oil for 10 years.

But face it, you don't have any true 10 year edge, you're just gambling $100k off a price that you can't trade.

Don't buy the front month ETFs (OOO.AX or USO) unless you actually believe the futures curve is going to flatten or go into backwardation. USL might be a better option but still not optimal for your desired case.

 

[peter2]

Thanks for the detailed responses @InsvestoBoy you're teaching me plenty of new things.

 

[jjbrisbane99]

thanks so no real way to do this apart from fill my backyard with barrels!

 

[InsvestoBoy]

thanks so no real way to do this apart from fill my backyard with barrels!

dude I told you, get a RV subscription, look at the tankers thesis.

 

[Value Collector]

hi, i have been searching around but cant really find the best solution. Basically what i want to do is buy 100K in wti crude and then hold it for an unspecified time and sell it when i believe it is a good time. I have the cash so dont need to leverage but i have not really found a solution to do this. I have found the following ways but none are appropriate.
1. etf like ooo.ax but this does not represent the actual price of wti
2. options and futures - these have set times i need to exercise and i dont want that
3. cfd's but they are leveraged and a daily cost for holding?

Basically i am trying to buy now and sell it any time i want in the next 10 years.
thanks Jon

Pretty much every Oil company in the world is renting all the tank space they can at the moment, So storage prices are very high, its even hard to charter oil tankers at the moment, they have become floating storage.

 

[Value Collector]

thanks so no real way to do this apart from fill my backyard with barrels!

https://www.rte.ie/news/business/2020/0318/1123912-oil-storage-facilities/

 

[pavilion103]

I posted this in another thread...
Just incase anyone in here has thoughts.

Hello friends. I have questions about oil...

Recently I bought into the Betashares crude oil index ETF on the ASX.
I bought $10,000 @ $2.90 and
$5,000 @ $2.97
For an average price of around $2.93.

I know about the risks with contract expiry and prices.

I have a question however.
From my calculations the dividend of 5.978c in April means a yield on my average purchase price of 8.12%.
However I saw that this was slashed from over 40c the previous quarter.
Is this almost certain to fall further next quarter?

Also why doesn't the price on this ETF reflect the percentage increase in the WTI futures.
For example I bought in when WTI was around $12 and its now $34.
BUT I do know that the ETF is linked to the June July and August contracts.
Is the reason why prices don't move the same percentage wise have anything to do with the ETF costs, dividend payment and potential costs when moving from one month's contract to the next? (contango) - wasn't advised of that but fortunately price has risen and curve flattened off more!
Still it is much lower than the WTI movement.

Any thoughts would be a tremendous help

Has anyone else purchased

 

[pavilion103]

IB

Do you subscribe to Real Vision?

My old friend...
Can't believe I am on here posting.
5 years of chronic illness - lyme disease.
Still in recovery but heading up...
Had to shift from trading to investing for the time.
Oil caught my eye.

 

[pavilion103]

Unless you're going to go ahead and buy $100,000 worth of actual barrels of oil it doesn't work like that.

You can't buy oil financial products and not suffer the current super-contango structure of the futures curve.

What you see as the current price of oil, $20 or whatever, will soon be $27 when the current front month contract rolls into the June contract.

OOO.AX simply holds front month WTI futs and hedges away the FX exposure. On the NYSE is the equivalent USO (front month), and USL which holds 12 month WTI futs instead of front month.

These ETFs do represent the "price" of oil as represented by a total return of rolling futures, unlike what you might think is the price of WTI as represented by a cash/spot chart.

CFDs simply track the underlying WTI or Brent futures.

You can't escape the contango without taking cash delivery of actual oil.

You could always buy CLZ30, the WTI futures contract maturing in December 2030, currently trading at $34.47, representing the all in cost (storage, fees, interest rates, etc) of holding oil until 2030. The current Open Interest is 0 contracts, you'd be the first holder!

Grab a RV subscription and check out Harris Kuppermans thesis on oil tankers, you might like that as a better play. https://adventuresincapitalism.com/2020/03/29/talkin-tankers-with-real-vision/

Curve seems to have flattened ALOT more?

 

[pavilion103]

The current contract prices

 

[pavilion103]

IB

Do you subscribe to Real Vision?

Sold base here.
It’s come into some (maybe ST) resistance.
July contract WTI

 

[Chronos-Plutus]

hi, i have been searching around but cant really find the best solution. Basically what i want to do is buy 100K in wti crude and then hold it for an unspecified time and sell it when i believe it is a good time. I have the cash so dont need to leverage but i have not really found a solution to do this. I have found the following ways but none are appropriate.
1. etf like ooo.ax but this does not represent the actual price of wti
2. options and futures - these have set times i need to exercise and i dont want that
3. cfd's but they are leveraged and a daily cost for holding?

Basically i am trying to buy now and sell it any time i want in the next 10 years.
thanks Jon

The commodity is just too volatile for me to take a CFD.

I am looking to buy into an oil producing stock soon.

 

[pavilion103]

The ASX Betashare ETC - OOO

Can’t get a good screen shot on phone...

 

[Chronos-Plutus]

I posted this in another thread...
Just incase anyone in here has thoughts.

Hello friends. I have questions about oil...

Recently I bought into the Betashares crude oil index ETF on the ASX.
I bought $10,000 @ $2.90 and
$5,000 @ $2.97
For an average price of around $2.93.

I know about the risks with contract expiry and prices.

I have a question however.
From my calculations the dividend of 5.978c in April means a yield on my average purchase price of 8.12%.
However I saw that this was slashed from over 40c the previous quarter.
Is this almost certain to fall further next quarter?

Also why doesn't the price on this ETF reflect the percentage increase in the WTI futures.
For example I bought in when WTI was around $12 and its now $34.
BUT I do know that the ETF is linked to the June July and August contracts.
Is the reason why prices don't move the same percentage wise have anything to do with the ETF costs, dividend payment and potential costs when moving from one month's contract to the next? (contango) - wasn't advised of that but fortunately price has risen and curve flattened off more!
Still it is much lower than the WTI movement.

Any thoughts would be a tremendous help

Has anyone else purchased

Hey mate,

OOO tracks the S&P GSCI Crude Oil Index Excess Return which tracks the WTI futures.



https://www.betashares.com.au/files/collateral/pds/QAG-OOO-QCB-pds.pdf