Exposure to oil price

masonic

gkerr4 wrote: »

The ETC i'm looking at, as far as i can tell - doesn't suffer from the lag of the fund which is noted in the other thread. It more accurately follows the price of crude oil on the dow-jones index.

is that not correct? - i guess this is the heart of my question.

DId your research take you as far as the factsheet? If it did, perhaps you missed the first statement in the section entitled "Index Description" on the front page, which states (my emphasis):

"The Index is designed to reflect the movement in the price of the WTI crude
oil futures contracts (that are continuously rolled on a pre-determined rolling
schedule) used in the Bloomberg Commodity IndexSM. A futures contract is
an agreement to purchase a commodity at an agreed price, with delivery
and payment to take place at a specified point in the future. Futures
contracts are generally disposed of just before the term of the contract
expires and new contracts entered into in order to avoid taking actual
delivery of the commodity in question (a process known as 'rolling'), so that
continuous exposure to the commodity is maintained. The contracts being
purchased may be more expensive than the contracts being sold which
would cause an investor in commodity futures to make an additional loss."

However, what i would also say is that the "significant portion" of gains take by that ETF wasn't as far as i could see that much of a significance. A couple percentage points maybe?

It has been estimated at about 30% in one real world example in the thread you were previously referred to. That might have been an extreme case, but illustrates such a loss is certainly possible.

Thrugelmir

Saudi's are in for the long haul to win back market share. So we may have at least 3 years of low prices. As over supply is the weapon of choice to force competitors out of business.

Ryan_Futuristics

Personally I think the best way to invest in commodities is momentum/trend-following

They tend to follow quite clear trends (rather than reverting to mean like equities), so relatively easy to catch upside and get out at a good time ... Buy-and-hold with commodities has a fairly unappealing risk/reward profile (I made that mistake early on with metals)

Personally I see most the potential upside in Russian equities - especially the large Russia oil producers ... If oil gets over $100/barrel again in the next few years, there could be 2-300% upside in it for the broad Russian market ... But I'm waiting for a buy signal before adding any more here

Thrugelmir

Ryan_Futuristics wrote: »

If oil gets over $100/barrel again in the next few years, there could be 2-300% upside in it for the broad Russian market ...

What makes you think it will? Russian oil is expensive to produce compared to other sources .

Last time prices fell rapidly the Saudi's cut production and they were the ones to lose out. OPEC no longer operates a cartel, the first time in over 40 years. Every country to itself.

Reaper

gkerr4 wrote: »

Can anyone think of a better instrument to use for this purpose?

One occurred to me recently. The oil producers are directly affected by the oil price, but even more than them are the oil services companies. So to my mind an effective leveraged choice would be a company such as Petrofac (PFC). Their share price has dropped 50% and I imagine it would recover a similar amount if the oil price returned to its previous highs (though you should do a bit of research to see if anything else is currently affecting it).

Note this is an example of the type of company to investigate not a recommendation. Plus personally I don't think the oil price will be going up any time soon.

hyposmurf

Thrugelmir wrote: »

Saudi's are in for the long haul to win back market share. So we may have at least 3 years of low prices. As over supply is the weapon of choice to force competitors out of business.

That's what I understand to be the case to, so not a great future for countries like Russia who rely on the price being higher to fund their social system.

gkerr4

Reaper wrote: »

One occurred to me recently. The oil producers are directly affected by the oil price, but even more than them are the oil services companies. So to my mind an effective leveraged choice would be a company such as Petrofac (PFC). Their share price has dropped 50% and I imagine it would recover a similar amount if the oil price returned to its previous highs (though you should do a bit of research to see if anything else is currently affecting it).

Note this is an example of the type of company to investigate not a recommendation. Plus personally I don't think the oil price will be going up any time soon.

Ah thats interesting - i hadn't noticed petrofac had taken such a beating - this is a good line to research - thank you.

Ifts

Thrugelmir wrote: »

Saudi's are in for the long haul to win back market share. So we may have at least 3 years of low prices. As over supply is the weapon of choice to force competitors out of business.

Saudi Arabia's minister of petroleum's former senior adviser told the BBC they could cope with low oil prices for many years -

http://www.oilandgaspeople.com/news/1534/former-saudi-oil-boss-says-it-can-cope-with-low-price/

Ryan_Futuristics

Thrugelmir wrote: »

What makes you think it will? Russian oil is expensive to produce compared to other sources .

Last time prices fell rapidly the Saudi's cut production and they were the ones to lose out. OPEC no longer operates a cartel, the first time in over 40 years. Every country to itself.

I think with the Ruble where it is, and where it's likely to stay until Russia's economy picks up, it shouldn't have problems with export - especially with trade deals with China

Also last time they fell rapidly, they didn't take long to pick back up - it's typical investor behaviour to see bottomed out prices as a new paradigm, but historically that only tends to happen when a new technology comes along

I don't like betting on commodity prices though - but there's a lot of upside in Russian equities, and at least a healthy dividend at the moment

racing_blue

I have dipped in and out of OILB a few times over the years

Looking at the 5 year chart & seems to rise and fall with oil prices despite the effect of contango which still concerns me