Wt Wti Crude 2x Discussion Threads

[crapcrap] 19/1/2009 13:53

had a small punt @ 4.67!

[andrewbaker] 19/1/2009 12:32

BJED- Sure, the oil price will rise ... sometime. When it does, I'll go long. I'd rather get on a ride when it's going in my direction, rather than get it going the other way and having to wait for it to turn around, eventually!

[crapcrap] 18/1/2009 20:39

guidfarr, i have used barclays stockbrokers, and hargreaves landsdown for my sipp
good luck
cc

[bjed] 16/1/2009 23:48

Fleet Street Daily think OILB (Brent) is about to rally, shortly followed by CRUD/LOIL (WTI) :

If you have been reading FSD over the last couple of months, you will know that we have been predicting a massive rally in the oil price. But a quick look at the benchmark price of oil doesn't show that happening.

Since the beginning of the year, the price of West Texas Intermediate (WTI) crude oil has fallen by 23% to just $35.40. WTI is used as the global benchmark for the oil price. That is the figure that most analysts look at. And its performance goes against what we have been saying.

But we have actually been spot on. The price of oil has already come back sharply. You just have to look beyond that headline figure to see that.

The real price of oil is rising fast

In fact, the global price of oil has risen sharply since the beginning of the year. You see, since September, the OPEC oil cartel has slashed its oil production by a whopping 4.2 million barrels per day. Those cuts are now beginning to bite. While the price of WTI has fallen, the price of Middle Eastern oil has been rising. The price of a barrel of Dubai crude has already risen by 8% since the start of the year. It now trades at $45.09 per barrel.

Even that figure doesn't really get to how big an impact the OPEC oil cuts have had on the market. You see, Middle Eastern oil is of a much lower quality than WTI. So it normally trades at about $4 - $5 less than a barrel of West Texas crude. It is now trading at $10 above WTI.

Oil will be at $80 - $100 by the end of this year

So the cartel's production cuts have already had a massive impact on the oil market. But the OPEC oil barons are just getting started.

As we said before, OPEC is going to do whatever it takes to drive the price of oil back up. On Tuesday, Saudi Arabia announced that it was slashing its oil production by another 300,000 barrels per day. The Kingdom is now producing even less oil than its OPEC quota. And that same day, OPEC's secretary general, Abdullah al-Badri, announced that the cartel would probably slash oil production even further when it meets again in March.

You can already see what that means. The price of oil is set to rise sharply. In fact, I believe that it will hit $80 - $100 per barrel by the end of this year. Speculators betting on lower oil prices in 2009 are in for a rude awakening.

The Oklahoma Oil Trap

OPEC's cuts have driven up the oil price globally. North Sea Brent Crude oil is now trading at $44.65 per barrel. Russian Urals oil is at $44.67...

So why exactly has the price of WTI lagged behind? That comes down almost entirely to a little quirk that I call the Oklahoma Oil Trap.

You see, almost smack in the centre of the United States is the city of Cushing, Oklahoma. Cushing is probably the most important oil trading hub in North America. Major oil pipelines run through the city connecting the Gulf Coast suppliers with northern consumers. In fact, the city calls itself the "pipeline crossroads of the world."

That wasn't an exaggeration. Because the New York Mercantile Exchange uses the price of oil at Cushing to set the price for West Texas Intermediate. NYMEX is the biggest oil market in the world and the Cushing price is the standard reference point for the global oil price.

With the US now in recession, demand for oil there has fallen. So oil stockpiles in Cushing have been building-up recently. That has driven down the price of oil over the short-term. And that has fed through into the global headline price for WTI oil.

The lower prices that we are seeing there right now are an anomaly. They don't reflect the global supply and demand situation for oil. So right now, the short term glut of oil in this Oklahoma city is giving a totally misleading picture about the global oil market.

Time to add some oil to your portfolio

That won't last for much longer though. We see clear evidence of that by looking at oil futures market. These are the contracts for West Texas crude that is going to be delivered in March. This morning, those contracts were trading $43.75. That is a 24% jump on the current price of $35.40.

What that shows us is that the oil traders don't expect the short-term supply glut in Cushing to last. The benchmark WTI oil price is set to join the global oil price rally.

The rebound in the oil price that we predicted has already begun. But we are still right at the beginning of this massive oil rally. It is time to add oil to your investment portfolio.

[andrewbaker] 16/1/2009 16:28

Saint27- Happy to muse online with my thoughts, but they are not recommendations. DYOR is the important thing. Oil will not make a price uptrend for some while IMHO so I would not buy now as an active trader. If I were looking to invest in the price of oil with a holding period over say a year or two or more, then I might buy a long ETF (CRUD, OILB as examples) now, but not LOIL. LOIL being leveraged is, again IMHO, better for when the uptrend is established due to the leveraged loss on the downside. Also, if oil does drop to $30 or even sub-$30, then it might be a long holding period waiting for the price to recover and make good the interim loss.

I think the oil price will either fall or remain in a narrow trading range in the few months ahead.

[saint27] 16/1/2009 15:39

Thanks for comments.

AndrewBaker - would you recommend waiting for an uptrend to establish itself before buying CRUD or LOIL or would you buy whilst cheap and just sit on it? Apart from tying up funds are there any disadvantages to buy now and wait?

Can you see the price being quite stagnant for next 6-12 months?

[andrewbaker] 16/1/2009 15:17

LOIL is not a long term hold at this time: the odd spike up will happen due to volatility, but the oil piice is not in an uptrend yet and won't be for some time. Day/v short term trading, maybe.

[cpeck] 16/1/2009 14:33

Doing well here today.

[guidfarr] 15/1/2009 19:06

guys which broker do you use to trade CRUD and LOIL, my broker saxobank doesn't seem to offer them although they show up in the instrument explorer!

[bobby.ifa] 15/1/2009 18:55

Saint- you must consider what the actual cost of bringing the stuff out of the ground. I've heard Saudi its 25 doolars per barrel,to 50 in South America.Therefore it has an intrinsic floor.

[saint27] 15/1/2009 16:51

Dear all

I am after some advice if I may - I think there is a good chance that oil may return to $30 or lower in the coming months and when it does I think that it would be excellent value to buy - in my opinion oil will bounce back and a good profit could be made if one can hold for 1-2 yrs?

Given this long term view pls could people advise me whether they would recommend loil or simply oil without the leverage. I would not be wishing to daytrade but keep a long term view - even if oil were to drop further. Surely it cant be so simple that loil means 2x the profit?

I have read the other posts on this board but am still a little unsure as to the best route and why loil wouldnt yield a bigger profit than straight oil - surely oil can never drop to being worthless.

Any advice or thoughts very welcome.

Thanks in advance

[andrewbaker] 15/1/2009 12:20

No-one knows where oil next, so I may take a position in LOIL as well as keep my SOIL for the moment. Good chance both will show a profit at some point in the next few days, and I'll sell the appropriate one at the time.

mountpleasant- UK market makers adjust prices constantly. OILB is Brent and the market's open at 10:29am when you posted, whilst LOIL is US based and the markets are not open, so some price quotes are essentially guesses in this situation.

[bobby.ifa] 15/1/2009 11:25

It's up exactly 8%!

[mountpleasant] 15/1/2009 10:49

Forgive my ignorance, but why do I see OILB up about 4% and LOIL hardly moved?

[bjed] 14/1/2009 19:28

Andrew

Thanks for the info. I think I'll stick to LOIL then as I like the leverage.
I wonder if it'll bounce strongly off $5 as it did last time.

[andrewbaker] 14/1/2009 18:37

BJED- DBO tracks an oil index using futures as does CRUD and LOIL, with the difference being that DBO selects which future to rollover into by picking the one up to 13 months forward that has the least contango (or most backwardation). However, that is at that time: ie simple contango/backwardation. The real figure is not known until it happens, so whilst it picks the optimum one at rollover, the real result may still favour the simple strategy of rolling over the expiring contract to the next month's. There is no way of knowing in advance: you pays your money and takes your chance.

OIH invests in a set selection of oil services companies, not oil itself. They do not always go hand in hand. I traded DUG (a geared inverse oil companies index tracker ETF) the first time without knowing this, and wondered why it went down when oil was going down. I found out: the market re-rated oil and oil service companies just at that time, so as they went up, my inverse ETF went down, regardless of the fact that crude was going down at the time. I was sloppy and re-learned from that never to invest in any security I did not know about and understand.

[bjed] 14/1/2009 17:02

Copied from energyi's Oil etfs thread :

Buying Oil - why NOT to use the Oil etfs.
You may miss out on the first 50% of gains:



DrBubb recommends investing in NYSE:DBO (PowerShares DB Oil Index Exchange-Traded
Funds Trust) or NYSE:OIH (Oil Services HOLDRs Trust due 12/31/2041) to track the price of oil without losing out on rollover due to contango.

[andrewbaker] 12/1/2009 18:39

jonwig- Yes, if all the factors and efforts out there to get the price of crude up are not working, what will it do when they go away? $30 oil may well be on the cards.

CRUD longer term, yes. OILB is the Brent crude equivalent.

There are US ETF that play oil (long, short and leveredged both ways), but the problem is not just the trading hours, but buying them for my ISA, where my main trading is, involves me in the market makers spread on these, which is generally wider than LSE quoted ETF. Plus, a leveredged short right now might not be the best thing. When the upturn comes, it's a lot further to go than the remaining downside, IMHO.
...................................
What's with gold right now? My LPMT profits have come down, and I might have to sell to lock some in.

[jonwig] 12/1/2009 17:39

Latest news, Bloomberg:



Andrew, I'd agree with your analysis, and anyone playing a long position for a long time should try another way than LOIL. (CRUD? I haven't looked at OILB.)

However, with a smaller time horizon, LOIL/SOIL are the plays.

[andrewbaker] 12/1/2009 16:01

Boffster- The leveredge is based on the daily change in price, so over such a period as your example looks at, there are too many variables for a comparison to have any meaning: contango, backwardation, differences in the AIG index and the Brent Crude index, the ups and downs of the oil price notwithstanding.

On 1 April 2008, LOIL was 46.08 and OILB 84.12 and on 9 Jan 2009 5.63 and 32.88 respectively. This shows LOIL down 87.78% and OILB 60.9% over that period. However, on 3 Dec 2008 OILB was 35.86 and on 7 Jan 2009 35.98: pretty much even. Yet LOIL was 8.17 on 3 Dec and down to 6.87 on 7 Jan: 16% down, compared to a very small percent increase in OILB.

In short, it costs money for the leveredge. Other factors can and do change the returns over any given period, but the costs of leveredge will always make that contract dearer than an unleveredged one.

[boffster] 12/1/2009 14:29

Andrew, please forgive my ignorance as I'm not an overly experienced trader. But taking a simplistic view of things, lets say you took a position in both LOIL and OILB around april last year, when both securities were trading about $50. Lets say you put $5000 into LOIL, and $10000 into OILB.

By the time of the July spike your LOIL investment would be worth around $9k, and your OILB around $14k. So at that point we are roughly even, being up around $4k on both.

Looking at things now your LOIL investment would be worth a miserable $500, but your OILB would be worth $4k. Having lost $4500 on LOIL but $6000 on OILB, I can't see how LOIL performs any worse than 2 x OILB. Seems to be better if anything.

[andrewbaker] 12/1/2009 13:05

Boffster- The cost of leveredge means that LOIL and similar ETF do not get back to the price they were at when the commodity concerned drops and subsequently rises back to the same price level, as the example posts' figures show. I have put these figures to ETF Securities, and they have confirmed them to me. If you are referring to contango, it was ETF S. who said to me to buy the forward contract to reduce the affect as the difference in forward futures prices is less due to contango than it is for the expiring month into the next month. In comparing the two, as you suggested, if you take the prices at an intersection and compare them to the current prices, you can see that LOIL has done worse than 2x OILB over the period. (This ignores the fact that these ETF track different oil indices.)

[boffster] 10/1/2009 14:14

Andrew, I don't think you're right about that. Compare the charts for LOIL against OILB. See how the charts intersect at roughly the same point on either side of the summer spike, from April to September 08. If LOIL was losing out vs. OILB, they wouldn't.

[jonwig] 10/1/2009 11:43

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