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I've never put money into a dedicated vehicle for commodities. Nickel and oil these days, are great examples of WHY. Such volatility. The market in Nickel out of London was CLOSED for a WEEK.
What does "better" mean? You asked for the vehicle that most closely correlates to WTI oil price. Closest and better performing are not the same. Nor do I suspect that any of the 1099 funds would track that closely, because they're likely to use futures or other derivatives. They don't necessarily track the actual (spot) price of commodities. Notice that the spot price never dropped below zero; only the futures did.
Lets try it this way: If an investor believed WTI would rally 30% over the next year, what vehicle would you use? No individual options. No K-1's. No leverage ETF's.
Lets try it this way: If an investor believed WTI would rally 30% over the next year, what vehicle would you use? No individual options. No K-1's. No leverage ETF's.
The answer to that is NONE.
Commodities that are hard to handle (e.g. oil) or perishable (grains, meats) can be bought only through futures, and those diverge a lot from spot prices. Just think, if you bought barrels of crude oil on the spot market, where would you put it? Only dealers and refiners can handle spot crude. So, as imperfect as futures may be, that is all investors have to play with.
Precious metals are exceptions because you can buy and store physical gold/silver/platinum, etc and store in home safe or bank locker. There may be small friction in buying and selling (5-15%). And you can buy precious metal futures too. So, there is dual way to handle precious metals.
I meant to broaden my question to ask for ANY vehicle (stock, etf etc), not strictly a commodity play. Mark provided a viable choice. Is it the best choice?
That is a different question. There are many oil-producers ETFs. The biggest is XLE, then IYE, etc. These being market-cap weighted have huge weights in XOM and CVX. There are options on XLE too. For equal-weights, there is RYE.
Oil-producers may be involved with E&P, distribution, refining, retail gas pumps, so they will react to oil prices differently, but will have positive correlations.
Clarification: You can buy oil futures (or any commodity, as I have done in the past), just be sure to close your position as appropriate so you don't accept delivery! Not sure about anyone else, but I don't have the parking available for a bunch of oil tankers or wheat carriers to park outside. FYI if you play with futures or futures-linked products (ETFs, etc) you also have to beware of things like contango which can impact your position sigificantly over time.
YBB's 8:23pm post offers solid alternatives to owning or playing in the futures market. I myself own distribution and some refining majors.
“Lets try it this way: If an investor believed WTI would rally 30% over the next year, what vehicle would you use? No individual options. No K-1's. No leverage ETF's”
I wouldn’t believe that at these levels! However, if one did think that he might …
- invest in alternative energy (wind, solar, geothermo)
- invest in coal producers and / or the railways that transport it.
- Short the airlines.
- You might consider drilling equipment providers as fracking would likely make a comeback.
fyi.....OP on 3/15/22 when WTI price was $96.44. Now $111. Regarding Nat Gas... important to remember the extreme shortages this past winter. Prices next Fall might get interesting going into 2023 winter.
Refining profit margins as represented by 3:2:1 crack spreads are at record high, $55-60/bbl. I am holding on to some IYE - not yet at all-time high ($57.72, 6/23/14).
I have had both XLE and IYE and I have used them for tax-swaps in the past. But as I have been gradually taking profits via high-ball limit orders, XLE is all gone and only IYE remains. Only XLE has options. Either is good for trade.
Energy may have redefined volatility (besides cryptos, of course). XLE was very strong, crashed in June/July, and rebounded now with fury. ALL of its components are again above 200-dMA. If oil remains $90+ (new OPEC-put price?) and crack-spread remain strong, refiners would be swimming in profits and cashflows. This may sound very strange with the talk of recession but then 2022 has been a very unusual year.
Iron-condor is a complex options strategy of pairing a call-spread with a put-spread in the hope that the price remains rangebound.
I think that oil has too much news and geopolitical (OPEC, Russia-Ukraine war, SPRs) dependence to make any meaningful range predictions. Just look at natural gas where European prices now are beyond any previous imaginations.
Crack-spreads (~refining margins) were about $60/barrel (yes, per barrel) in late-June and now are only (!) $28/barrel. With Brent $94/barrel and WTI $88/barrel, those are still very high refining margins. Twitter Link
Comments
OILK (WTI;1099), USO (WTI; K-1), BNO (Brent; K-1). These hold oil futures.
https://etfdb.com/etfs/commodity/crude-oil/#etfs__holdings&sort_name=assets_under_management&sort_order=desc&page=1
You can check out whichever ones interest you.
As an example, DBO returned -5x as much as OILK over the past three years (60%+ vs -12%+). On a point-to-point basis (March 14, 2019 to March 14, 2022) WTI nearly doubled, from around $56 to around $100. Neither of these came close to that.
https://www.eia.gov/dnav/pet/hist/rwtcD.htm
https://oilprice.com/oil-price-charts/#WTI-Crude
Commodities that are hard to handle (e.g. oil) or perishable (grains, meats) can be bought only through futures, and those diverge a lot from spot prices. Just think, if you bought barrels of crude oil on the spot market, where would you put it? Only dealers and refiners can handle spot crude. So, as imperfect as futures may be, that is all investors have to play with.
Precious metals are exceptions because you can buy and store physical gold/silver/platinum, etc and store in home safe or bank locker. There may be small friction in buying and selling (5-15%). And you can buy precious metal futures too. So, there is dual way to handle precious metals.
Oil-producers may be involved with E&P, distribution, refining, retail gas pumps, so they will react to oil prices differently, but will have positive correlations.
YBB's 8:23pm post offers solid alternatives to owning or playing in the futures market. I myself own distribution and some refining majors.
I wouldn’t believe that at these levels! However, if one did think that he might …
- invest in alternative energy (wind, solar, geothermo)
- invest in coal producers and / or the railways that transport it.
- Short the airlines.
- You might consider drilling equipment providers as fracking would likely make a comeback.
Regarding Nat Gas... important to remember the extreme shortages this past winter. Prices next Fall might get interesting going into 2023 winter.
From https://twitter.com/JavierBlas/status/1532125358744551430
What is crack spread? https://ybbpersonalfinance.proboards.com/thread/102/energy-complex?page=1&scrollTo=658
https://www.macrotrends.net/2478/natural-gas-prices-historical-chart
After 5/31/22 rebalance, top 3 sectors of momentum MTUM are healthcare 29.92%, energy 20.67%, consumer staples 16.73%
Before: IT 31.27%, financials 24.51, healthcare 13.05%
https://stockcharts.com/h-sc/ui?s=MTUM&p=D&yr=1&mn=0&dy=0&id=p86662937955
Chart from Twitter Link.
Maybe good to place iron-condor -
I think that oil has too much news and geopolitical (OPEC, Russia-Ukraine war, SPRs) dependence to make any meaningful range predictions. Just look at natural gas where European prices now are beyond any previous imaginations.