I’m not a trader, just a long term investor. I bought shares of USO about 2 weeks ago and may look to add to the position in this current weak environment. I agree that a big reversal is not gonna happen in the near term, but for a 3-5 year horizon, I can’t see getting hurt with this bet.
I’ve been buying super majors when oil was from $40-45, 1 has been profitable, others have performed poorly. Just picked up a bit of USO and will add more if it dips into the low 30’s or below.
I’m beginning to think something similar… I’m regretting selling my short oil ETF about $10/bbl ago though.
I was thinking the same…there has to be some opportunities right now. Although i think oil can go below 30.
how is USO (ETF) priced in relation to oil?
bbg “same price chages to WTI crude delivered in cushing, oklahoma as measured by changes in % terms of the NYMEX.”
On the topic of commodities, gold is down to like $1075.
careful homies. at least 2-3 years until oil sees a rebound back to $70. just look at IEA’s data. 2 years before demand catches up with supply (assuming a major decline in NA production) and another year to work through massive inventories. and this is probably the bullish case notwithstanding some geopolitical nightware. the guys who produce at $20/bbl just said they’ll produce as much as they want. and in the meantime, you’re buying into the popping of a massive commodity bubble, possibly the largest ever outside of wartime.
Indeed. Oil spent most of its time since 1950 roughtly around $30 (inflation adjusted). It went to $115 before, only to come down and spend a decade+ around $30. I wonder about the big picture, if the increase in the prices of commodities was driven by a global debt bubble (increasing demand, supply not keeping up), and we are reaching peak debt, then it seems you get a period of oversupply, that maybe lasts a long freakin’ time. Whatever is going on, at $30 I’m interested, not so much at the current $38.
http://inflationdata.com/articles/charts/inflation-adjusted-oil-prices-chart/
These US oil dudes are going to get double spanked. They got away with their “business” because of low cost borrowing, and high priced oil right? Good luck making them debt payments with rising interest rates and oil heading into $20s.
It’s not a levered fund if that’s what you’re asking. Tracking error aside, 1:1
little update on this - I got beat down a bit initially with this trade, and a few weeks ago I switched short (ie DWTI) since I didn’t believe for a second that Saudi Arabia would lower their output. My view now is that this is a cage match with all the producers trying to knock each other out. There aren’t nearly enough bodies on the floor yet, and with Iran still coming into the market with another 1,000,000+ barrels per day and storage running out, this is most likely going to get a lot worse before it gets better. December 2017 contracts sell for about $50, and that seems too high to me because I don’t see enough companies going bankrupt to lower the output sufficiently between now and then. Even the oil sands guys are still cranking out barrels. I don’t really understand their game plan - it costs them about $70 to make a barrel and then they’re selling it for $38? seems moronic to me, but so long as they keep running the taps, I’m gonna hold my short position. when I start seeing some consistent inventory drops, I’m going to switch and go long, but I don’t think that will be until late 2017. Also there’s some season inventory build tendency that begins in january-february, so a $25-$30 barrel is not out of the question if these idiots keep pumping the way they are.
The roll yield is negative with USO. How much does that hurt per month?
You need to understand the difference between fixed and variable costs to be credible on this one. And then you’ll understand why sub $30 is not that likely.
How could anyone still not understand the plan? Put the high cost producers out of business.
Except that the oil sands ARE the high cost producers, so why are they still in the game?
it takes time. the cost of shutting in oil sands production and then restarting it is so high that they’d rather roll the dice and keep producing at a loss. most oil sands production is operated by oil majors or supermajors so most have the wherewithal to survive simply by cutting capex or cutting dividends. plus, many still have decent hedges on so it’ll be another 6-12 months before serious decisions like shutting in oil sands production needs to be made. smaller players will die though.
Again, not all oil sands operations are high cost. Suncor’s cash cost per barrel is C$27-30 in their oilsands operations. They’ll keep running probably until WTI is at US$20.
but isn’t WCS currently priced at US$22 (CAD$30)? so we’re at breakeven now.
I’m not an expert on oil in Alberta, but some of those big producers that have been there for a while sell their crude at a premium through upgrading the heavy oil to synthetic light sweet crude. My check of Edmonton Syncrude Sweet crude this morning actually has it trading at a premium to WTI by $0.20/bbl. Not all sell at WCS pricing. On the flip side, I think the cost to upgrade is higher b/c you have to purchase condensate. Not sure what the margins are on that.
As geo was getting to, I think its hard painting all oil sands producers with the same brush. There’s some very material differences between producers and projects.