Author Topic: just put 50k into a crude ETF today  (Read 8309 times)

The Beacon

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just put 50k into a crude ETF today
« on: March 25, 2015, 07:29:03 PM »
I plan to gradually buy crude up to 300k from this level.  Some people might not be comfortable buying into crude now. But I am . Crude dipped to around 40 dollars a barrel in 2009. I will not try to catch the bottom here. I hope It will go down to 20.

The probability that crude will have a  better return at this level is much higher than the market at 18,000/5000/2000.


2-3 years ago, the US dollar/ Japanese Yen was around 1:80.  Today it is at 1:120. Look at EUR now.  It is at record low against the USD.  Look outside the stock market, you might find a rough diamond.


 

Financial.Velociraptor

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Re: just put 50k into a crude ETF today
« Reply #1 on: March 25, 2015, 08:09:13 PM »
Good luck.

The long term price for US crude has to be around 60/bbl (the marginal cost of the swing barrel producers), that is just what markets do.  It can down far and stay there for a long time first though.  Here is hoping you can stay solvent longer than the market can remain irrational.

rickhuizinga

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Re: just put 50k into a crude ETF today
« Reply #2 on: March 25, 2015, 08:35:45 PM »
My concerns are:

- What happens when storage space runs out?  All new production would need be sold at ANY price.
- Duration of the trade.  I've read that storage space currently costs about $0.80 per barrel per month.  It could be expensive to ride out this trade if it takes a while for prices to recover.

hodedofome

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Re: just put 50k into a crude ETF today
« Reply #3 on: March 25, 2015, 08:56:21 PM »
Forget what the price of crude does. Your crude ETF sucks. The spot price could bounce and the ETF could go nowhere. Have fun.

The Beacon

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Re: just put 50k into a crude ETF today
« Reply #4 on: March 25, 2015, 09:09:43 PM »
My concerns are:

- What happens when storage space runs out?  All new production would need be sold at ANY price.
- Duration of the trade.  I've read that storage space currently costs about $0.80 per barrel per month.  It could be expensive to ride out this trade if it takes a while for prices to recover.

I believe those concerns are just what we see on the surface.  The oil price is controlled by Wall Street. I actually believe it is controlled by the US government along with the US dollar(QE anyone?). The US government brought down the oil price to punish Russia. It can't be such a coincident.  But it won't stay around this level for too long. It does not need to have a phenomenal performance though.  I just hope it will beat my index fund in the next 5 years. It is not a 100% thing. But probability is high enough for me to take the risk. We will see...  I will dig up this thread in a year or 2.     



The Beacon

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Re: just put 50k into a crude ETF today
« Reply #5 on: March 25, 2015, 09:18:53 PM »
Forget what the price of crude does. Your crude ETF sucks. The spot price could bounce and the ETF could go nowhere. Have fun.
That statement is true and false.  It is true for someone who likes to trade crude oil (CL).  It is false for someone who treats it as a passive investment.
I am very aware of that disconnection. However, it is a passive investment for me like my index fund.  Why would anyone like me average down on a "trade"?.

For all the ups and downs of "fun", I trade SP 500 E-Mini. I am up and down a few thousand every day. Would you consider that fun?  Nowadays, I do not feel a thing anymore. Maybe it is time for me to up my position size again.  See how liquid the ES is....  100 contracts is like a spit in the ocean.   
« Last Edit: March 25, 2015, 09:44:24 PM by Sharpy »

rickhuizinga

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Re: just put 50k into a crude ETF today
« Reply #6 on: March 25, 2015, 10:53:55 PM »
I've played this trade a little differently, but I'm not sure if better.

Having recently sold my home, I was lamenting that domestic stock prices are currently pretty high, however oil and energy stocks are probably on sale.  I made a contrarian investment by buying PEO, a petroleum and energy closed end fund.  At the very least I'll benefit slightly from the increased oil storage fees from the contango trades that are happening.  Hopefully, your investment is putting a few cents into my pocket.

I'm not feeling totally comfortable with PEO as I don't like the minimum mandatory annual distribution of 6%.  I'd prefer the fund to only distribute income rather than any possibility of a return of capital.
« Last Edit: March 25, 2015, 10:58:24 PM by rickhuizinga »

hodedofome

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Re: just put 50k into a crude ETF today
« Reply #7 on: March 26, 2015, 08:37:05 AM »
Forget what the price of crude does. Your crude ETF sucks. The spot price could bounce and the ETF could go nowhere. Have fun.
That statement is true and false.  It is true for someone who likes to trade crude oil (CL).  It is false for someone who treats it as a passive investment.
I am very aware of that disconnection. However, it is a passive investment for me like my index fund.  Why would anyone like me average down on a "trade"?.

For all the ups and downs of "fun", I trade SP 500 E-Mini. I am up and down a few thousand every day. Would you consider that fun?  Nowadays, I do not feel a thing anymore. Maybe it is time for me to up my position size again.  See how liquid the ES is....  100 contracts is like a spit in the ocean.

If you were just buying USO or USL for a trade, then that might be ok. It's the fact that you want to hold it for a long time that causes the breakdown in the ETF strategy. The contango will kill the upside of the ETF. Just compare a long term chart of USO vs spot price and you'll see what I mean.

Best way for small investors to benefit from higher oil prices is investing in oil and gas company stocks.

Aphalite

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Re: just put 50k into a crude ETF today
« Reply #8 on: March 26, 2015, 08:37:33 AM »
Why not just buy integrated majors? That way you get the upside today (higher margins on refinery operations) and upside when oil goes back up (higher margins on upstream operations). You're also discounting that technology will only get better for extraction (recent shale explosion, for example), and in the future we may be able to extract oil for even cheaper

http://static2.businessinsider.com/image/4defd684cadcbbe55e0d0000/chart-of-the-day-crude-oil-history-june-2011.jpg

20 years of oil above 30, then 90 years below, then 10 above, 20 below, another 5 above, and now we're below again. Seems pretty speculative to me

2Birds1Stone

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Re: just put 50k into a crude ETF today
« Reply #9 on: March 26, 2015, 09:09:54 AM »
I made a small speculative play on VGENX (Vanguard Energy Fund) a few weeks ago.

So far its paid off vs SP500 performance.

I think we have a good chance at seeing crude down to the $32 range short term.

forummm

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Re: just put 50k into a crude ETF today
« Reply #10 on: March 26, 2015, 10:42:13 AM »
Good luck with the gambling. Unlike a business that you think is undervalued, oil itself isn't producing a profit, paying out dividends, etc. It's totally dependent on many other forces which I don't think we can predict very accurately.

Electric cars are real and could dramatically reduce demand for oil worldwide. I own 2 electric cars and an electric lawn mower. I don't buy gas. Once people drive electric, they generally can't stand driving an ICE. The big hurdle of range anxiety is about to become a thing of the past. In 2016 and 2017, Nissan, GM, Tesla, and others (I think Ford and Infiniti) are coming out with 200+ mile range vehicles. Nissan's, GM's, and Tesla's cars will be in the ~$20-40k price range after tax credits. Very affordable and primed to go mainstream.

Scandium

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Re: just put 50k into a crude ETF today
« Reply #11 on: March 26, 2015, 11:07:07 AM »
My concerns are:

- What happens when storage space runs out?  All new production would need be sold at ANY price.
- Duration of the trade.  I've read that storage space currently costs about $0.80 per barrel per month.  It could be expensive to ride out this trade if it takes a while for prices to recover.

I believe those concerns are just what we see on the surface.  The oil price is controlled by Wall Street. I actually believe it is controlled by the US government along with the US dollar(QE anyone?). The US government brought down the oil price to punish Russia. It can't be such a coincident.  But it won't stay around this level for too long. It does not need to have a phenomenal performance though.  I just hope it will beat my index fund in the next 5 years. It is not a 100% thing. But probability is high enough for me to take the risk. We will see...  I will dig up this thread in a year or 2.   

So, short term gambling based on conspiracies and wishful thinking? Good luck indeed.
« Last Edit: March 26, 2015, 11:20:21 AM by Scandium »

rickhuizinga

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Re: just put 50k into a crude ETF today
« Reply #12 on: March 26, 2015, 11:10:46 AM »
Once people drive electric, they generally can't stand driving an ICE.

Reminds me of this great commercial for the Nissan Leaf: https://www.youtube.com/watch?v=Nn__9hLJKAk

waltworks

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Re: just put 50k into a crude ETF today
« Reply #13 on: March 26, 2015, 12:56:16 PM »
2 possibilities here:
1. $300k is play money you can afford to lose. So, you are already FI, go do something more fun/useful with your life than stupid commodity trading.
2. $300k is a big chunk/all of your NW. You are gambling based on conspiracy theories and juvenile intuition. Good freaking luck, stock up on tinfoil too.

-W

frugledoc

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Re: just put 50k into a crude ETF today
« Reply #14 on: March 26, 2015, 01:12:28 PM »
Commodity ETFs are not designed for long term buy and hold and are really more speculative investments for traders.


marketnonsenses

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Re: just put 50k into a crude ETF today
« Reply #15 on: March 26, 2015, 02:02:29 PM »
I like your style.

The Beacon

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Re: just put 50k into a crude ETF today
« Reply #16 on: March 26, 2015, 03:36:08 PM »
@hodedofome and @aphalite  You guys have valid points.  My ETF is nothing like USO or USL.  Mine invests in the oil majors such as XOM.

As for others who believe that the following are just conspiracies,  Here are some facts.

1: The USD is controlled by the US government (the FED).
2: The price of oil is controlled directly or indirectly by the US too.

As for 1, there is not much debate needed. The Fed basically printed our way out of a deep recession.  The US is the biggest currency manipulator.

As for 2, it is even more obvious than 1 because it is priced in the USD which is controlled by the Fed.  How many wars have we fought in the past decade for oil? It is basically because we can't simply allow others to dictate the price of such a strategically important resource like oil.  That is an indirect form of government intervention/control. If we were a small and weak country, we'd do nothing.  Who are those Wall Street talking heads that said oil would hit 200 dollars a barrel or drop to 20 dollars a barrel?  Wall Street can basically sway the public sentiment however they want.

I hope you do not believe that we have 100% free markets here.   I have speculative trades almost every single day.  There is nothing wrong with speculation if you have an edge. But this is not one of them.



 


waltworks

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Re: just put 50k into a crude ETF today
« Reply #17 on: March 26, 2015, 03:50:55 PM »
Glad you've got it all figured out. Hope the world doesn't do something random and unpredictable and lose you a bunch of money. Luckily, as we all know, oil prices are easy to predict in advance.

-W

hodedofome

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Re: just put 50k into a crude ETF today
« Reply #18 on: March 26, 2015, 03:58:18 PM »
@hodedofome and @aphalite  You guys have valid points.  My ETF is nothing like USO or USL.  Mine invests in the oil majors such as XOM.

Well then I wouldn't personally call it a crude ETF. To me, when someone says crude ETF they mean USO or USL. XLE or OIH is a different deal, I'd call those energy ETFs. Bottom picking is not my thing but I have noticed some positive divergence off the recent lows in both the energy ETFs and CL.

The Beacon

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Re: just put 50k into a crude ETF today
« Reply #19 on: March 26, 2015, 04:06:32 PM »
@hodedofome and @aphalite  You guys have valid points.  My ETF is nothing like USO or USL.  Mine invests in the oil majors such as XOM.

Well then I wouldn't personally call it a crude ETF. To me, when someone says crude ETF they mean USO or USL. XLE or OIH is a different deal, I'd call those energy ETFs. Bottom picking is not my thing but I have noticed some positive divergence off the recent lows in both the energy ETFs and CL.

Mine is IXC.  its major holdings are XOM, BP, CVX an etc.   It is an iShare.  It calls itself ETF. https://www.ishares.com/us/products/239741/ishares-global-energy-etf

My goal here is to fire and forget.  I will not lose sleep when crude drops to 20 dollars a barrel. 

Aphalite

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Re: just put 50k into a crude ETF today
« Reply #20 on: March 26, 2015, 04:16:13 PM »
I don't think there's anything wrong with that strategy - world will always need energy, and there's still plenty of hydrocarbons laying around

Although, if you have 50k, why not put it into a brokerage, negotiate 10 free trades, and create that ETF yourself? then you avoid the 40bps expense on the ETF, over time that could be big
« Last Edit: March 26, 2015, 04:20:48 PM by aphalite »

theoverlook

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Re: just put 50k into a crude ETF today
« Reply #21 on: March 31, 2015, 11:55:27 AM »
As for others who believe that the following are just conspiracies,  Here are some facts.

1: The USD is controlled by the US government (the FED).
2: The price of oil is controlled directly or indirectly by the US too.


2+2=4 is a fact.

What you posted is opinionated conspiracy.  Don't mix up the two.

691175002

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Re: just put 50k into a crude ETF today
« Reply #22 on: March 31, 2015, 12:39:23 PM »
You can make a case that the supply of USD is controlled by the fed, but the value of the currency is set by market forces.  There are legitimate reasons why a country might want to manipulate its currency (ex: yuan, franc) but such an action is both expensive and obvious to all market participants.  No, the US is not the "biggest currency manipulator".  Currency manipulation is a real term that has a real economic meaning.  It does not describe any action that the US has taken.

Saying the price of oil is controlled by the US is silly in the same way.  The US has limited influence over supply and demand, but to imply they can control the price is ridiculous.  If you want to see real price manipulation just look at OPEC.  It takes deliberate publicized cooperation by many large players to control a global commodity.


You also have to be conscious about how your investments are exposed to the price of oil.  An increase in the price of oil does not directly translate into profits on equity positions.  Most equities are implying ~$70/bbl oil based on historical P/E ratios.

Note that the price of crude has been roughly halved, but most large oil producers have only taken a 20% haircut.  That should be particularly surprising if you realize that oil producers actually have leveraged exposure to the price of oil as a result of fixed extraction costs.

I have no real opinion on whether oil stocks will outperform the overall index, but if I had to guess I'd say they do better but with more volatility.

forummm

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Re: just put 50k into a crude ETF today
« Reply #23 on: March 31, 2015, 12:46:28 PM »
As for others who believe that the following are just conspiracies,  Here are some facts.

1: The USD is controlled by the US government (the FED).
2: The price of oil is controlled directly or indirectly by the US too.


2+2=4 is a fact.

What you posted is opinionated conspiracy.  Don't mix up the two.

But conspiracies are just so much more exciting sometimes.

gimp

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Re: just put 50k into a crude ETF today
« Reply #24 on: March 31, 2015, 01:18:19 PM »
I bought VGE instead, I think it's a better idea.

But I bought 5 shares ($500 or so), for play money...

Aphalite

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Re: just put 50k into a crude ETF today
« Reply #25 on: March 31, 2015, 01:36:09 PM »
Note that the price of crude has been roughly halved, but most large oil producers have only taken a 20% haircut.  That should be particularly surprising if you realize that oil producers actually have leveraged exposure to the price of oil as a result of fixed extraction costs.

Not surprising at all - part of the reason majors don't correlate directly with price of crude is because crude is an input to downstream businesses. In cheap oil environments, the refinery businesses get higher margin