L Boyd

Marc Faber, Jim Rogers and Boone Pickens - Bullish on Oil

@riskreturnoptimizer - re: 'this concept of roll'. ETFs and ETN's that track commodities such as oil (or copper, orange juice, etc) usually do so by continually buying front month futures contracts. Before the front month contract gets to its settlement date, the fund will close out its position and buy the next front month contract. In periods of extreme contango (now) this is a very unprofitable strategy. The fund is essentially buying at a high price, and as the contract nears its settlement date the contract has (probably) traded much lower, at which point the fund sells for a lower price than it paid. In an effort to provide continual exposure to the price of oil, the fund is buying high and selling low on a monthly basis.

This is why you see many (smart) companies (hedge funds, commodity-related companies, etc.) buying large amounts of oil on the spot market and storing it. They are essentially doing the exact opposite of the aforementioned oil ETFs. They are buying low (on the spot market) and then will SELL a futures contract at a higher price - using their oil "stash" to cover the contract. As the settlement date nears, they will usually close the contract out by buying it back at a lower price - therefore never having to move their actual inventory of oil. As long as the profit they've made on the contract buy/sell is more than what they're paying for storage of the oil, they've done well. They can (and will) continue to do this on a monthly basis. Unfortunately, this isn't an accessible strategy for your everyday investor (idea for a new fund?). Not to mention, we're running out of storage space!

The Dollar/Oil Surprise: What Does 2009 Hold?

Article has a lot of common sense and I very much agree.

@Patio, I'm on the same page friend. Inflation will not hit us anytime soon, but when it does it will skyrocket. We've still got a TON of de-leveraging to do so I don't think that we're in any near term inflationary pressure. That being said, there are so many USDs being pumped into the market, that when this turns around, the USD will go into a downward spiral. Not a bad time to go short the dollar in the next couple of months, I would wager; no question that if the Euro fails, the dollar would skyrocket, but again, I believe that'll be a relatively short-term spike. In the long-run, the yuan will be a very attractive alternative to the USD. Once again, if you can keep a long-term investment view while taking advantage of near-term opportunities, you stand to do very well. I feel that EVERYBODY knows what's going to happen; the trick is timing all of it right.

Plummeting Oil Prices Increases Hedging for 2009 Contracts

I wonder at what point most ETFs/ETNs start to get out of front month contracts? If one could get a sense of the timing of this, there may be a way to profit off of these by going short a few days before and then obviously selling before the delivery date.