Oil futures ETF

themanfromamarillo

From a tweet by one of the ETF reporters at Bloomberg USO's issuer has suspended the creation of new shares in the ETF as they've hit a limit on the number of shares in the ETF they are allowed to issue. The issuer has applied to the regulator to allow them to issue more shares.

strawb_shortcake

Thrugelmir said:

annabanana82 said:

Username999 said:

annabanana82 said:

Futures and CFD's came up in my last exam, goodness knows why as I'll never use it in my job. I scraped through with 53% pass as it just goes way over my head

What sort of exam, farming?

Chartered institute of Purchasing and Supply, I understand that it will apply to some of my sector but in the public sector where I am. 
Farming I may have done better in...

Agricutural sector uses forward contracts all the time. Grain trading in particular. 

Ah thank you, very unlikely to move into agriculture. Our tutor barely covered it and sent us to a trading page and urged us not to part with any money on said website 

EdGasketTheSecond

Some gold ETF's are supposed to be backed by physical gold in a vault which is audited. Some say you can even redeem your shares for the physical gold. I guess it is alright 99% of the time but then you hear rumours about the gold being 'lent out' on other contracts or there being 10X the amount of gold on the ETF paper compared to actual gold. I guess until someone investigates and calls one or more of them out, or there is a market meltdown and you find the gold isn't actually there when you try and sell, then we can never know 100% for sure that the ETF is actually backed by gold like it says it is. There's been rumours about SPDR's GLD for a long time but it doesn't stop it being hugely popular.

Barry_Bear

Physical gold is OK as a long buy and hold, with occassional disposals, but even then larger quantities then involve insurance or bank vaults. But none of that makes for easy rebalancing of a portfolio if you use, say, Hale, Bernstein, Swedroe rebalancing if you have a diversified portfolio of equities, bonds, gold, cash.
How do you hold gold and rebalance your gold allocation Ed?

John_

Barry_Bear said:

From today's financial news
"The slump in prices this week will be very painful for an ETF such as USO, especially given the way that oil futures contracts mature on a monthly basis. That means that a Fund must roll over their contracts to avoid actually owning physical oil one factor behind yesterday’s crude meltdown."

Anyone here understand these contracts? What do they mean by "roll over" to avoid owning the oil? If being forced to roll over is so bad, then what happens in normal circumstances when the fund doesn't have to roll over, does it take posession of the physical oil? How is that possible? What would happen if due to an error, glitch, or misjudgement contracts were not rolled over, how is the holder forced to take delivery, or how can they get out of doing so if they have no facility to store oil?

Yes, I understand them very well, I’ve traded them professionally myself for a bank.

If you own this month’s oil contract when it expires, someone delivers a load of oil to you. Generally investors don’t want the oil, so they sell this month’s shortly before it expires, and buy the next month’s instead.

If you cannot take delivery there are penalties, which is why holders of the long position were selling even though the price was negative yesterday. And yes, people do make mistakes, there’s the occasional story in the markets of a graduate failing to roll his cheese futures and taking delivery.
Now, I could write for days on this, but this is no way for you to do your research.

John_

gays_on_crack said:

Being forced to take physical possession of oil is not a risk.

Why would you say that? The holder of the long position has an obligation to take delivery, not only a right.

EdGasketTheSecond

Barry_Bear said:

Physical gold is OK as a long buy and hold, with occassional disposals, but even then larger quantities then involve insurance or bank vaults. But none of that makes for easy rebalancing of a portfolio if you use, say, Hale, Bernstein, Swedroe rebalancing if you have a diversified portfolio of equities, bonds, gold, cash.
How do you hold gold and rebalance your gold allocation Ed?

I don't go in for conventional rebalancing; these are not conventional times or markets. I'm long on gold and silver, short on stocks (but that might have to change if the FED decides to buy stocks big time) apart from the precious metal miners, plus a bit of cash. Bonds I avoid except for some index-linked; the returns aren't worth the risk.

TemporaryUsernameMay2020

John_ said:

gays_on_crack said:

Being forced to take physical possession of oil is not a risk.

Why would you say that? The holder of the long position has an obligation to take delivery, not only a right.

Good point. I was trying to say that I would expect an ETF to be managed so as to avoid taking delivery, so the more likely risk is large losses from rolling over at unfavourable prices.

But I see I typed that futures contracts involve "the right to receive so many barrels of oil", which is wrong: as you say, it's the right and obligation. I should probably smoke less crack

macman

So, what happens when Cushing's 91 million-barrel capacity is full up, as is reportedly going to happen before too long? 

Username999

macman said:

So, what happens when Cushing's 91 million-barrel capacity is full up, as is reportedly going to happen before too long? 

"U.S. Energy Dept. to fill Strategic Petroleum Reserve (SPR) with a purchase of 77 million barrels of oil."

But when all storage is full (above ground, below ground, and on the sea), the USA Shale Oil companies will be forced to turn off the taps.
That will kill some oil wells for good and bankrupt many of the 6,000+ producers in America (which is what Saudis want).


Also possible to store 25 million barrels in Railroad Tank Cars...
https://www.marketwatch.com/story/using-railroad-tank-cars-to-store-excess-oil-its-possible-but-improbable-for-now-2020-04-21?mod=article_inline