CME Crude Oil Long term long position

[bluejean]

Hi,

I am a long term investor holding long positions for months to years.
In February 2009, I bought a future CME MINY Crude Oil at around USD 45.5.
Since February 2009, I rolled my future position several times (selling back the maturing contract and buying the next monthly / quarterly maturity) in order for me to keep my long position over the long term.

Today's price is around USD 77.8 and in theory that would give a P&L of about USD500(77.8-45.5) = USD 16,150.

In reality, my P&L is only around USD 11,200.

Most of the difference between 16,150 and 11,200 is due to the fact I had to roll contracts from one maturity to another, i.e selling back the contract arriving at maturity at a cheaper price than the new contract I was buying. That is because the farer the maturity, the more expensive is the contract and therefore each time I roll, I am "losing" money or more precisely, I am making less money than I should have made, because the price is jumping up for each new maturity.

How can a long term investor keep a long positon in WTI Crude Oil without the disadvantage of losing money each time he is rolling contracts?

I decided to trade WTI Crude Oil using CME MINY futures because futures are a liquid instrument, there is a clearing house, the futures spreads are low and the commissions are low. However the cost or rolling the positions over the long term is ridiculously high!

Is there a more efficient way to invest long term?
Spead betting is out of question because spread betting companies charge an overnight interest rate each time you carry a long postion overnight and in the long term the cost can be very high.

Trackers / ETFs are issued by banks and there is no clearing house, therefore if the bank goes bust, I lose all my money.

So how should I invest, what investment vehicle should I use?

Thank you.

 

[benmaya]

I feel the same about the oil. It is too bad that we don't have spot price. I use spread betting and my company doesn't roll the it every day so it is the cheapest way I found

 

[Papa Lazarou]

Backwardation... those were the days!

 

[leanhussle]

Orgininally buy the far out month contract. Then no rolling needed. Will still go up a similar amount as the front month.

 

[bluejean]

If you look at the future curve, you'll notice, the further the maturity, the higher the price of the future, so it does not matter a lot if you roll every month or every 2 month or every quarter, you will end up with more or less the same P&L.
By rolling quaterly, you will pay less in execution fees, but you'll pay more in spread, so buying far maturity contract does not solve the problem unfortunately.

From what I've researched this week end, the best solution to have an exposure to crude oil while avoiding the erosion due to contango is to buy shares in oil companies. This means having a buy and hold strategy.
Definitely something I need to look into.

 

[songcon]

Is there a more efficient way to invest long term?
Spead betting is out of question because spread betting companies charge an overnight interest rate each time you carry a long postion overnight and in the long term the cost can be very high.

Trackers / ETFs are issued by banks and there is no clearing house, therefore if the bank goes bust, I lose all my money.

So how should I invest, what investment vehicle should I use?

Thank you

PWE: Penn West Energy Trust, an open-ended, unincorporated investment trust, engages in acquiring, developing, exploiting, and holding interests in petroleum and natural gas properties and assets. Its properties are located in the provinces of Alberta, British Columbia, Saskatchewan and Manitoba, and in the Northwest Territories in Canada, as well as in Montana, Wyoming, and North Dakota in the United States. The company was founded in 1979 and is headquartered in Calgary, Canada.
http://finance.yahoo.com/q/pr?s=PWE

This is a 2-year chart for PWE compared with Oil & Gas index. It's doing better than the index for the 6-month period, probably due to the collapse of the gas price recently, for a 3-year period, the performance is reversed.

It's a aceptable substitute if you want to stop paying for the contract premium and the renewal works but the investment also involved in gas

 

[techcherry]

hi
why don't you change for options, that will give you a good exposure and less need of capital.
I you want to stick to spreadbeting futures, sometimes when I roll my contracts, through capital spreads, if you do it with at least 24h before their deadline you can try to spread the new cost between the two...

 

[piparb]

I trade only positions for 1 to 4 hours a day :cheesy:
So I pay nothing and win 16000 $ per day .
Why some traders trade overnight , I don't understand

Happy trading :clover:

hi
why don't you change for options, that will give you a good exposure and less need of capital.
I you want to stick to spreadbeting futures, sometimes when I roll my contracts, through capital spreads, if you do it with at least 24h before their deadline you can try to spread the new cost between the two...

 

[Martinghoul]

There's no free lunch... The massive USO ETF is in the same boat as yourself, which is why it's underperformed vs the spot. Given the current contango, you either have good liquidity, but incur rolling costs, or you have poor liquidity, negative carry, but don't have to roll. Options won't help mitigate these issues.

 

[TWI]

If I were you I would forget the idea of investing in the front month contract. If you look at the crude market there is tightness developing from Q32010 and by 2011 we are probably approaching a marginal cost of $80-85. There is an interesting calendar relationship in crude, when prices come off as they have recently on the slower than expected OECD stock draw an the Euro weakness the calendars bang out, nobody wants to trash the back months because it is clear that things get tight there. If you want too be a long term investor bite the bullet and pay up the contango now it will be a lot cheaper than going through the monthly rolls all the way to Z12.

 

[piparb]

One time I try to make money on the roll , but the CME overroll me , so I lost my account
Now I don't trade , when contracts were rolled ......:smart:

happy rolling

If I were you I would forget the idea of investing in the front month contract. If you look at the crude market there is tightness developing from Q32010 and by 2011 we are probably approaching a marginal cost of $80-85. There is an interesting calendar relationship in crude, when prices come off as they have recently on the slower than expected OECD stock draw an the Euro weakness the calendars bang out, nobody wants to trash the back months because it is clear that things get tight there. If you want too be a long term investor bite the bullet and pay up the contango now it will be a lot cheaper than going through the monthly rolls all the way to Z12.