thanks guys for ERX... will be watching this. what exactly is DXO?
Best Way to Buy Oil
- Thread starter datamerc
- Start date
the problem every ETF will have is how to get long oil.
You can either buy oil and store it in large tanks or you can buy contracts in the future market. I can't see another way to be long oil.
Currently due to the heavy contango situation (Jan 2010 oil is nearly 30% higher than Jan 2009 Oil) some clever people have been filling old ships (instead of wrecking them) with oil and sold them forward by shorting some 2010 future contract. This way they make a near risc free gain which will be much higher than the storage costs in this case.
I tried to find out for some European oil ETF about the current costs involved and phoned them but they did not want to answer this question or they could not. People in the call center did not even know what contango is.
This is NOT a problem for short term investing but it IS a problem if you want to invest in Oil in the long run.
if you know currencys " HOU.TO ETF" from canada follows the ny crude but in canadian dollars............. just an idea
Quote from datamerc:
Thanks Topsurfi.
So a simple person such as myself, can't just buy $5,000 worth of USO at $40 and then close at some future date at $60 (hopefully) to be left with $7,500 less fees?
it depends on how long you will need to hold it. If oil makes af fast 50% run then you will be right with $7500 but if it takes a year or longer you simply don't know the costs involved with the ETF since you can't predict the rollover costs.
Rollover costs do not have to be negative all times, futures can also be in backwardation. In this case you gain by beeing long and rollover. But right now oil is in worst contango ever (at least from what I ever experienced).