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When BTFD Fails: Spot The Oil ETF "Knife Catchers"
With crude oil prices once again testing cycle (multi-year) lows this morning - following a brief bounce on the death of Saudi King Abdullah - we thought it intriguing that for the 4th month in a row fund flows into the iPath Oil ETN have surged to almost six year highs. As Bloomberg Briefs reports, "the kind of flows that we're seeing can only be explained by 'catch the falling knife' behavior, where people are trying to call the bottom," as December and Jnauary flows now top $400 million - the most in 6 years for a 2-month period (as price plummet further). But 'investors' are piling into double- and triple- levered "up" oil bets too...
Follow the flows... to insolvency...
As Bloomberg Briefs adds,
An exchange-traded note that lets buyers wager on a rebound in oil is attracting assets at the fastest pace in almost six years.
"The kind of flows that we're seeing can only be explained by 'catch the falling knife' behavior, where people are trying to call the bottom," said Dave Nadig, chief investment officer of ETF.com in San Francisco.
...
ETN investors aren't limiting their bets to an oil-price rebound. Both the VelocityShares Daily 3x Long Crude ETN, which gains if prices rise, and the VelocityShares Daily 3x Inverse Crude ETN, which does well if oil falls, had their biggest weekly inflows ever over the past two weeks, Bloomberg data show. Even in those ETNs, which were issued by Credit Suisse Group AG in 2012 and are often used as short-term investments, the prevailing bet has been on a rebound.
"There has been significantly more flows into the up oil product than the down oil product," said Nick Cherney, chief investment officer at VelocityShares LLC. The long product had $119.2 million of inflows in the two weeks through Jan. 16, while the short product had $56.5 million, Bloomberg data show.
The iPath ETN, issued by Barclays Plc in 2006, has returned negative 52 percent over the 12 months through yesterday. The VelocityShares long ETN fell 89 percent, while plunge in Oil Sparks Buying of iPath ETN the VelocityShares short ETN more than quadrupled.
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this king abdul death mean change policy
Straddles playing the volatility?
the FED arguing with the Saudi's about what the bottom should really be, the Saud's want to go into the 30's the FED wants it just under 50?? Just a guess
Heysoos Christee!
There are options on these things. The contract is 1,000 British barrels. If you can't do the maff, shame on you!
Putting money in an oil ETF is an IQ test, in reverse.
some folks getting margin calls ....
The first words from the new King are to hold the same course of low oil prices. However, this change does mean less stability, and when combined with the Iran-backed rebel overthrow of Yemen, the always present ISIS threat, and the effects on the Saudi national budget -- things could get interesting. Don't look for any immediate change, but the Saudi Black Swans are circling the country.
No chance. The King hand chose Salman, so you can bet he'll hold the line on all policies Abdullah was in favor of.
Oil knife catchers deserve what they got, or, in this case, lost.
Why, cuz we are shorting 'murrica?
Three guys are fighting (Shale, Saud, Russia) and we should lay bets?
Hedging?
P A I N...
Sudden Debt is in there somewhere
yeah, 6% loss so far, I’m good :)
And no options, and the companies are all under protected contracts untill 2016
I’ll get the last laugh ;)
Unless you think they’ll hand out oil for free in a few months and angels will come from the sky and piss oil in the depleted reserves, you’d better prepare for a oil spike
These idiots have loaded up a hair trigger, double barrel shit machine gun.
Shitstorm Troopers!
I can handle a knife. Its the falling chainsaw that scares me.
http://money.cnn.com/2015/01/22/news/economy/oil-boomtown-layoffs/
If only the U.S. had a national Internet Sales Tax, we could bailout Boomtown.
talk about good paying jobs... and then there's all the people who sell them clothes and cars and ...
then there's the notes and bonds of the co.'s who never imagined oil again under 100.00 ...
this could get ugly ...
"Investors" have been conditioned to BTFD for six years. That's all they know how to do.
Of course, stock markets are the only money game in the world. The governments and the banks have seen to that. So...put your money in the markets and make the world markets grow. Why is this so hard to understand for some people. Go with the money flow.
Down only 89%? Meh.... It still has 11% to go. It will come back....just hold on for thre long haul..... lol......
The commodity trades daily. Is there something wrong with buying that?
Apparently it's not the lack of energy, but abundance that causes collapse of complex civilizations. As it turns out, the Roman Empire wasn't brought down by government deficits, but by a sudden hailstorm of gold and silver nuggets falling form the sky.
/sarc
Whoa, sure saves a lot of gas not having to drive to Vegas.
I will reserve judgement on those "knife catchers", especially considering who is actually "trading" in the "market". I cannot name one retail trader I know that would buy such an "investment".
Guilty as charged. It's not fun riding this out, but at some point this will have to revert to some mean.
1) Geo-political (Yemen, new King having to pay out people)
2) Most countries are not making money and may have limited ability to produce
3) Shale is shutting down (supply)
Maybe it will go to $30, but it looks like mid 40's is about where we are these days. It also depends on where you caught the knife? 85, 75 or 45....I would suspect some of these guys will be laughing in 3 months.
Shale is not shutting down. 2015 production will likely increase, not decrease.
Last I checked, the people that have not gotten their pink slip, the rest are being printed...no one is going to back Shale after this adventure, which is precisely what the Saudis want.
Would you invest your money/time in shale knowing that the Saudis could flip you off like a light switch?
Even when the price recovers, people are going to think long and hard before getting in Shale again. The costs + necessary hedging you will need to do wont be close to profitable
"Even when the price recovers, people are going to think long and hard before getting in Shale again."
Which is exactly why they won't stop producing. They'd rather produce at a loss and keep the revenue rolling in to service their debt then stop and likely never start up again.
There could be that lag, but compare YOY and I think you'll see months in 2H15 lower than 2014. If it's not shutting down, it WILL BE shutting down.
Producers have so much debt to service they cannot afford to shut down. They will produce at a loss because if they stop it'll likely never start up again even if prices go back up.
There are no more investments...only trades.
New crude LoD 45.44. Knife catchers are gathering at 44.50 on my screens:
http://www.investing.com/commodities/crude-oil-advanced-chart
Oil futures ETFs are for idiots -- the futures prices already adjust before they even roll their contracts forward. You also get nothing to hold them. Much better to BTFD on oil majors and selected oil services (not deep water drillers). You get some divvies while you wait for oil to hit $60 again. Don't go all in, and you win if oil goes up, or get to buy some more even cheaper if it goes down. History is on your side if you think oil prices will rise by late spring or early summer.
Wow, really? This, like..."makes sense dude."
Why would anyone do that?
Premier of Alberta is telling his constituents this is a 3 to 4 year long drop in oil price and adjust accordingly. What does he know that the rest of us don't?
How could you not know? Look at how bad things lasted last time and double the time period in politician-speak. And by "down" I mean down from their comfort-levels for their budget. No lesson learned since 2007-2009. This is my shocked face.
It's been a long time since I looked at them but that is what I found. It seemed the ETF never matched the gains of the commodity and the seperation got worse as time went by. Then Liesman on CNBC tried to explain that the formulas for the ETF's were such that the tracking was only good for 1 day. It was clear he was covering up that those ETF's were manipulated in some way (more than just the futures roll over).
this one's not to bad: HOU. It has had a gap of 33% at times but if you price that in from a low buying price in a crash, like right now, that's OK. Just look at the max price you would get with the overlay / scatterplot, x0.75, and that's the low price from the 33% (log 4/3 = -log (3/4) ) gap.
Some of HOU's gap is also that it's priced (tsx) in CAD vs WTI priced in USD.
Buying oil majors doesn't make much sense to me when inventories are at extremely high levels, American producers are pumping out at extraordinary levels, and production will still continue to increase through this year at the least. How is there an oil recovery in the short to mid term with this kind of environment?
Oil is going to go back up eventually, but this is like trying to time the next complete market bubble pop/crash.
Just when you think sanity will intervene some lunatic central banker announces $58 Billion Euro/month gravy for banksters QE.
How does destroying the currency help the Banks?
Banks are accumulating Gold, bringing in big fat salaries and bonuses, making money in the equity casinos churning Treasury (taxpayer) money borrowed at 0.09% while charging 4.5%-29% to the sheeple, and if things go "pop" they get bailed out.
It doesn't matter what the valuation of the fiat is because they always get 4% above current value using free money.
This is why Draghi got out his QE bazooka, it benefits his benefactors (banks).
"It doesn't matter what the valuation of the fiat is because they always get 4% above current value using free money. " < -- this.
The bankers and financiers have been getting free money (QE and ZIRP) for six fucking years and people still do "get" this.
"Loan" anyone on this fucking blog a billion at 0.1% interest and I guaranty they would be a "successful limited liability company".
Fucking joke. It's no wonder that all the QE/ZIRP money has done is enrich the bankers, financiers and their political puppets.
Precisely! We are being encouraged to play poker where some of players have unllimited credit and don't have to cover their losses.
Banks need cheap assets. Property: cheap. Energy stores on tankers: cheap. Slaves eager to work for pennies / meals: cheap.
That's how & why.
You have to put your money somewhere, and banks will "help you find the "right" currency which will make THEM a profit.
Bloomberg had a front page article yesterday titled "If oil hits $30, expect a global depression" (or something like that).
Reminds me of an old fairy tale about a sparrow who thought swaying trees were the cause of windstorms.
Oil used to be ten cents a barrel.
Sounds about right to me.
Correct.
During the prior Depression too:
http://www.bloombergview.com/articles/2013-05-06/when-the-great-depressi...
nice to see there’s so many mainstream adepts here :)
1 year ago, everybody was crying peakoil with the crowds :)
When everybody runs to one side of the bus, there’s no point in joining them, better take a seat on the side where’s there room to spare.
Yeah, but you standout more too. An obvious target. What's different doing? He's not like us. He is the enemy.
The minute oil crashed I was thinking this will go to the $30's and extract some real pain so those who want to consolidate and control can take what's left.
Good thing we all now know it's butterflies flapping their wings.
"Not yet, not yet..."
Fill me up : HOU (tsx). I don't see it lower than 6.16/share and I don't care if I buy at 8.
By my math 260.25 = WTI2 / HOU, reading 266.534 right now, predicting a price of 7.92 and last read 7.74. Works for me. For the same math with oil back at 100 later ... whenever that may be ... 38.42, maybe 37.70, and 387% profit will suit me just fine. Bet on oil prices never going back up: ya... that's a smart bet... I'll buy that for a dollar!
Crude future 45.35 just 90c away from a new 5.5 year low. Dragh me with a spoon:
http://www.investing.com/commodities/crude-oil-advanced-chart
Graph that against ERY and you get a very very different picture. ERY is down 20 percent (energy short)....
I was long ERY starting in Nov 14 and kept getting my face ripped off everytime a Central Banker said something. In between, I was up but when oil went down to 44 and from there to 50 in the last 20 minutes the day before the SNB fiasco, I sold the next day with a small profit. My profit was 4 times larger 20 minutes before close when oil was 44. Can't stomach the manipulation. Oil keeps going lower but ERY doesn't want to go down with it at the same rate. You never know when a Bullard or Yellen will run their mouth and XLE stocks explode upward at the same time oil goes down. Eventually, ERY will catch up to oil. Who knows when that will happen though. I got sick of waiting. I work in the oil services sector (for how much longer, I don't know? not by my choice) and know how horrible the business is now. The stock keeps going up though. Maybe after the horrendous Q1 rusults come out they will down? However, all that has to happen is another QE announcement or hint and they won't. Doesn't matter whether the companies are making money or not.
Contango? What's that?
The bottom is in when I say it's in and I say it's not in. Surprisingly lower oil will catch y'all by surprise.
Your porbably right. I'll average down and then see about a transfusion.
My first prediction (from December 12, 2014) was: "oil will find a bottom around $40 but won’t stay there too long and creep back to $60 were it will stay for at least 6-8 months. After that oil can spring back up to $80-$90 is possible over a year."
But after studying the subject a bit further and seeing the mayhem that low oil prices caused already, I think that my prediction was too optimistic.
Although I like to be an optimist the cold reality is that lower oil prices will sustain longer than many expect also because the demand simply is not there.
Gail Tverberg: This Is The Beginning Of The End For Oil Production https://www.youtube.com/watch?v=IOR3bdRJo98
Don’t Bank on Oil Rebound Says Fund That Foresaw Collapse http://www.bloomberg.com/news/print/2015-01-09/don-t-bank-on-oil-rebound...
Gunvor Sees No Return to $100 Oil Once Price Plunge Is Reversed http://www.bloomberg.com/news/print/2015-01-22/gunvor-sees-no-return-to-...
U.S. Oil Output Advances to Record Even as Prices Drop http://www.bloomberg.com/news/print/2015-01-14/u-s-oil-output-advances-t...
Iraq to Double Exports of Kirkuk Crude Amid Oil-Market Surplus http://www.bloomberg.com/news/print/2015-01-14/iraq-to-double-exports-of...