CME Crude Oil Long Term Long Position

[shortbleu 10]

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.

[DugDug 10]

The ONLY real answer is to buy and store the actual underlying. Get a tanker, store it off shore. but of course that costs money (hint hint)

 

Seriously though...learn about how a future is priced BEFORE you invest in them. Learn about fair value, rolling, spreads, contango, backwardation.

 

most spreadbetting and ETFs are the same for these reasons. they have to pay the roll spread as well, (it works in your favour when in backwardation and you are long)

 

Plus the first question that I asked was if you are a long term investor then why don't you invest in a long term future?

At the time it may have cost you more but it usually has less volatility, will still rise, and saves you the hassle of rolling. Of course this still has its issues of the contango moving into backwardation at times.

hope this helps

[shortbleu 10]

Hi DugDug,

I made some research re contango and backwardation, and you are right, ETFs, ETCs and other derivatives products tracking crude oil are also exposed to the risk of contango.

I came to conclusion, I am better of investing in oil company shares whose performance is correlated to price of crude oil.

 

Cheers