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Registered User
Joined: 10/4/2006
Posts: 4
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can anyone give explanation for the divergence for USO v XOIL since 1Q09?? (3 day chart)
I'm anticipating a geopolitical play but the divergece is confusing me 
I'm strictly equity trader, not into futures.
Bruce
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Registered User
Joined: 12/31/2005
Posts: 266
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QUOTE (jetstreamer) can anyone give explanation for the divergence for USO v XOIL since 1Q09?? (3 day chart)
I'm anticipating a geopolitical play but the divergece is confusing me
I'm strictly equity trader, not into futures.
Bruce
a geo political play does not sound like a good reason for an investment.
nice thing about trading the commodity as opposed oil companies, is there are less variables that affect price, i.e. companie earnings, stockmarket decline, etc.
as far as the divergences, i really couldn't tell you why they diverge other than one is a futures price and the other(uso) is the spot price. don't think i'd read into it to much.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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There has been a lot of talk lately in the news about ETF's
not tracking their benchmark.
(mostly I've heard it related to Direxion 3X ETF's and
UNG a natural gas ETF)
I'm no expert on USO but it typically has to do with how
they mimic the index. (futures, options)
They typically match better over the short term
but tend to diverge over longer timeframes.
Their goal is to match the trading day open to close.
(a 1% move in a stock index should create a 3% move in a
Direxion ETF)
However adjustments are made from close to open that
cause it not to track as accurately over the long-term.
Thanks
diceman
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Registered User
Joined: 7/1/2008
Posts: 889
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yes, USO's divergence has to do with its executions on the rolling of futures contracts. The fund is so big and it's moves basically telgraphed to the pit traders, that basically they are just grabbing profits at the expense of USO as if it were an ATM.
So USO does not and cannot track oil exactly.
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Registered User
Joined: 10/4/2006
Posts: 4
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thanks guys,
I know the uso trades the front month contract an maybe that has something to do with it.
If you look at the chart, the correlation was pretty good since 2007 until 1q09. I was wondering why the correlation has changed.
I know the leveraged etfs can't track their benchmarks.
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Registered User
Joined: 8/6/2009
Posts: 1
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Can we make it our ATM? :)
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Registered User
Joined: 9/25/2007
Posts: 1,506
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I remember back in about the mid-90s ... watching Jimmy Rogers on CNBC ... talking about how you would be able to tell when the "end" came for the USD ...
He expalined that (at that time) ... about 2/3 of all outstanding USDs were held outside the US in reserve currency pools for the acquisition/disposition of commodities, etc ...
He said that one day ... an oil producing country ... probably one that didn't call itself our friend ... would decide that they would no longer take USDs for their oil ...
And that the rest of the oil producers would quickly fall in line ... declaring that they would continue to take USDs ... but would also accept the alternate currency ...
From that time forward ... the preferred reserve currency ... would be the most stable currency ... which generally belongs to those with the best fiscal policy ...
China is moving away from valuing their currency based on the USD ... to a basket of currencies ...
Gulf Arab states are meeting to consider using another currency for the oil trade ...
Long oil ... long gold ... short USD ...
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Registered User
Joined: 10/4/2006
Posts: 4
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Reality,
the explanation from Jimmy Rogers is interesting. I'm thinking along similar lines ... although not as succinctly :(
I'm looking for a way to get long on oil (commodity) by buying leaps, but am having trouble finding a vehicle I like - preferably an ETF
Reasoning --
1. If the world economy is really on the mend, then the demand for oil will return accompanied by price increases.
2. If Israel decides to make a preemptive strike against Iran, the US will not be very popular in the region (understatement !!). I would also expect the Strait of Hormuz to be shutdown for a while. That in itself will drive oil prices higher.
3. If the USD is no longer the preferred currency, that would certainly disrupt the US oil market. Although I'm sure our "friends" would gladly accept more of our dollars for less oil....
Anyhow, just rambling thoughts... Thanks for listening
Bruce
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Registered User
Joined: 9/25/2007
Posts: 1,506
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I understand what you're saying jetstreamer ...
And think that it's a fairly plausible stategy ...
And it is not dependent on a US recovery ... as demand in Asia continues to grow at a good pace ... and those economies are now turning to look internally for future growth prospects ...
Meanwhile ... back at the ranch ...
Although there may be 1-2 mbd more production to squeeze out of the Middle East (in the near term) ... production at many fields is falling off at an incredible clip ...
A few years ago ... PEMEX's Cantarell field was the largest producing field in the Western Hemispere ... at a bit over 2 mbd ... dwarfing Prudhoe Bay and Thunderhorse ... and today it is producing around .75 mbd ...
Once they hit the top ... these things fall off really fast ...
A lot of folks get excited over a dicovery like the Tiber field ... that is thought to be around 4 billion barrels ...
But ... keep in mind ... it's only 20-30% recoverable ... it'll take ten years of hard work just to make it produce ... and when all is said and done ... and they've got all the "goody" out of it ...
It'll be enough oil to supply the planet (at today's rates) for about 16 days ... or the US for a bit under 2 months ...
The US no longer has the belly for conflict ... and I'm quite sure that after we turn tail and run out of Iraq and Afghanistan ... the region will fall under the control of Iran ... and we'll be lucky if they sell to us at any price ... (Arab Oil Embargo?)
And as you said ... Israel is wild card ... as they are quite confident that they no longer have a friend in the White House ...
And something tells me that they have the balls to push the big red button if need be ... as the latest intelligence indicates that it will require bunker busting nukes to reach the most recently disclosed facility in Iran ...
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Registered User
Joined: 1/30/2009
Posts: 267
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Very good post Realitycheck
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