If the oil industry is in such dire straits, especially internationally, one would think there would be a scamble for pre-rollover delivery months. Maybe we're starting to see it with Dec North Sea Brent up 50 cents today. That's at rough parity with our NYMEX WTI (our biggest crude futures contract that stipulates a midcontinent US delivery) vs a normal $1-$2 barrel discount. Their Dec contract has also moved up to a $1.50 premium to the post rollover Jan contract. If oil industry big shots are indeed in-the-know on y2k probs watch our Dec NYMEX contracts start a big rally mode. NYMEX Dec crude'll go off the board on Nov 19. The Dec products expire Nov 30. Why aren't we seeing a big premium for pre-rollover delivery months? I would think we will....

-- Downstreamer (downstream@bigfoot.com), November 03, 1999

Answers

If one believed that oil was going to make a big move to the upside, how would one 'invest', in order to get an obscene return if one was right? And what kind of return would this lucky guy make?

I appreciate any information you could give.

-- al (needcash@yearend.net), November 03, 1999.

Depends on whether or not we have a quick deflation. If the value of oil goes up, but the value of money goes up too, then the actual $ value of the oil could be less than today (but a new car could cost 1/10 of what it is today).

-- Dean -- from (almost) Duh Moines (dtmiller@midiowa.net), November 04, 1999.

I'm not a commodities trader or commodities expert. I have been around the markets for 20+ years trading and investing in common stocks. Commodities trading a much different animal. IMO, if the oil industry melt down does occur, December "deliveries" wouldn't necessarily rise faster than post CDC deliveries. In fact the theory is supply dries up further out. One possible trade might be to short the December contract and buy say March, April or May.

Also remember that the commdities markets are primarily for producers, processors and retailers to hedge their inventories. It may appear that the markets are nothing more a speculators play ground but they're a small part.

If I'm a big integrated oil company and my supply dries up because of problems in the fields and transpotation, the commodity market couldn't fill my bathtub let alone supply my worldwide facilities. I just wait for the problems to get fixed.

-- Garyh (thehargi@earthlink.com), November 04, 1999.

"If the oil industry is in such dire straits, especially internationally, one would think there would be a scamble for pre-rollover delivery months."

Downstreamer, you've made this statement several times, and it's one that I don't follow and don't agree with. First, it assumes that oil company insiders are the major commodities players, which isn't true. It's been mentioned before that most of them are leery of jail terms resulting from 'insider trading' activities and stay out of the markets.

Second, very few futures contracts are actually exercised, and very few oil companies actually buy crude by buying contracts on the open market.

Third, I agree that the post rollover price of oil should rise relative to December contracts. Think supply and demand: December crude should be available, so why pay a big premium for it? By March, any effects will be factored in, including shortages (March contracts go off the board in February), and these are the contracts that should increase the most, based on limited supply.

Forth, if the supply drops to nothing (or to 25% of current), then the only buyers from the oil companies will be governments putting diesel fuel in their tanks and JP in their jets. The commodity price may well crash, if it hasn't been fixed. Who can tell in such a situation?

Fifth, the market action is predictable in one respect -- WTI rose from about $10 to $25 in 5 sub-legs up, and has been in a relatively normal (flat) correction. The next major move should be up, it should be occurring very soon, and it should be very substantial. To hell with gold......I think this is where the real money will be make, providing one is adept at reading tea leaves, is nimble and gets out in time.

-- de (delewis@XOUTinetone.net), November 04, 1999.

Al, The posts below yours demonstrate why small speculators lose money trading commodities 90-95% of the time. Faulty logic and a lack of understanding on how commoditiy markets work. Just like all the electronic trading firms that have sprung up, there's plenty of on- line commodity brokerage firms that you can set up on line and trade from the comfort of your desktop. I advise this because you won't have some broker calling you with trade recommendations & churning your account. Get an issue of Futures magazine or surf around online. I like IRA Epstein but there's plenty of other discounters. If you don't have $10 in expendable money, don't do it. The 90-95% loser figure is accurate. I know because I used to own a commodity brokerage firm and I've seen the industry stats. You're at a big informational disadvantage and the floor traders pay $300-600,000 for a 'seat' because there's a big commpetitive advantage to be on the floor.

I don't advise options although that usually the first time the newbies buy. It'll cost you about $2,500 as initial margin for each 1,000 barrel contract. I'll cost you more if the position goes against you. For each dollar / barrel move you'll make (or lose $1,000). Keep it simple at first. You can trade spreads for about $600 initial margin. You'll want to go long the nearbys and short the deferreds in an anticipated up market. Less bang and less bucks on spreads. I've given you enough here to be really dangerous. Study up!

Now......

GaryH & De. Yeah right (snicker,snicker) sell Dec and buy March, April or May. Yeah... that sounds like a good trade. Tehehe.

I don't know who started this 'insider trading' deal. Thats for execs who have inside info on stock takeovers. THERE'S NO SUCH THING IN COMMODITY MARKETS.

"Speculators are only a small part" This is Bunk. Hedge Funds are speculators. Floor traders are speculators. Speculators dominate oil economics. Hedgers are a small part.

So oil supply is going to go to nothing or 25% Of current and you think prices might crash????? I'm not even gonna comment other than to say you must be infering some kind of rationing deal. Don't just think US, its a global market. Prices would go through the roof. Period.

Warning: Trade futures and you'll probably lose your ass.

-- Downstreamer (downstream@bigfoot.com), November 04, 1999.

Whoa, Screw up. It should read if you don't have $10,000 in expendable money....

-- Downstreamer (downstream@bigfoot.com), November 04, 1999.

Please keep us posted downstreamer.

-- nothere nothere (notherethere@hotmail.com), November 04, 1999.

dstream wrote: THERE'S NO SUCH THING IN COMMODITY MARKETS.

I beg to differ on that one. The FUNDS can move the market hard and fast. Little guys get hurt, maybe bankrupt in an afternoon. If you're thinking of trading commodities for a living, you really should think twice. Definitely for adults only. Not like this crap with the stock market. What a fucking joke that market is right now. Unbelievable. In some sense, the commodities are much more straighforward as a market. In terms of spreads, spreads are loosely defined as a position where you have twice the chance to lose, and the only position where two things have to go right for you to profit.

-- Gordon (g_gecko_69@hotmail.com), November 04, 1999.

Gordo, I'll admit I wasn't very clear. What I meant is there's no such thing as illegal insider info in the futures markets. The contention has been made, on several threads, that oil execs aren't taking market positions on their y2k concerns because they could get prosecuted for inside trading. That's bunk. In fact that's one of the central tenants of futures markets- price discovery. All market participants should be using all the supply and demand info that they have to determine the best prices for consumers and producers.

-- Downstreamer (downstream@bigfoot.com), November 04, 1999.

Hey downstreamer put the flame gun down I was responding to YOUR original post and said nothing about INSIDER TRADING. And yes my little guppy speculators are nothing compared to the hedgers.

My example of a staddle or strangle is legit. What was you winning trade?

-- garyh (garyh@earthlink.com), November 04, 1999.

Gary, I understand your logic on the short Dec / long springtime spreads but one can be too logical with too much finesse with these markets. If the market rallies the nearbys are gonna outperform the deferreds-nearly always. Your short Dec long springtime play would get killed - as it has the last 2 sessions. You think the real y2k probs won't show up until the Spring - buy Mar or April crude and sell Dec 2001. There's enough liquidity out there. I'm part of that open interest. I'm actually playing just the opposite as your recommendation - long Dec, short all over the board out next year. I've suffered through 2 price pullbacks and I'm adding on. Open interest tells me most of the length bailed on these pullbacks and there's plenty of sidelined potential length that can still get in.

I don't think this market reflects enough yearend hoarding demand let alone y2k rollover probs. This NYMEX crude market's going to $30. Dont go anywhere near spreads that are short the nearbys. I wouldn't be surprised to see the ol' squeeze play. Its already shaping up on the Brent.

-- Downstreamer (downstream@bigfoot.com), November 04, 1999.

Oh yeah.... crude market update on Thurs session: Dec Brent up 28 cents, up another 15 cents relative the Jan contract. Our NYMEX crude even stronger - up 58 cents to $23.14. For the 2nd session in a row, Dec contracts up big relative to next years contracts...

-- Downstreamer (downstream@bigfoot.com), November 04, 1999.