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Crude Awakening: Why Next Week Could Be Carnage For Oil ETFs

Tyler Durden's picture




 

Don’t look now, but the sharp slide in crude prices may be leading the proverbial sheep to slaughter. Investors have piled into the market’s largest crude ETF over the last several months sending the number of shares outstanding to the highest level since 2009. We suspect many of these “investors” might be unaware that they’re currently staring down the most severe decoupling between second- and first- month contracts in four years. 

"normal" knife catching BTFD'ers piled into USO for the bounce...

 

The last 2 times such an extreme contango occurred, USO volatility was gappy and extreme.

 

*  *  *

Sell low, buy high anyone?

 

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Fri, 03/06/2015 - 16:28 | 5862523 junction
junction's picture

As of 3:15 p.m. ET, the Dow Jones industrial average was down 270 points.

Fri, 03/06/2015 - 16:30 | 5862531 world_debt_slave
world_debt_slave's picture

time for the PPPT

Fri, 03/06/2015 - 16:38 | 5862552 rccalhoun
rccalhoun's picture

text me when its 2700 or more

202-452-3000  (or any wall where dutch boys are advertised)

Fri, 03/06/2015 - 16:42 | 5862575 Thecomingcollapse
Thecomingcollapse's picture

Plus one for the phone number, I see what you did there! :)

Fri, 03/06/2015 - 17:07 | 5862688 aVileRat
aVileRat's picture

Time for goldbugs to join crude, copper and the rest of the real productive economy in the pain trade.

And yes, Crude is going to 38 either by a strong dollar or the collapse & catch down to the US export numbers by terminal exports from the US industrials.

 

 

Fri, 03/06/2015 - 17:47 | 5862870 flacon
flacon's picture

Sunday night OPEC will announce cuts in production, propelling USO higher. Every day is a good day for market manipulation. 

Fri, 03/06/2015 - 20:36 | 5863383 sun tzu
sun tzu's picture

It might be good for a temporary idiot's rally, but everyone knows OPEC members cheat and OPEC oil production will actually increase if prices increase. More oil will flood the market as demand keeps decreasing. The only country growing GDP now is China and it's 3% at best. Everyone else is in contraction or struggling to avoid deflation.

Fri, 03/06/2015 - 23:24 | 5863811 wee-weed up
wee-weed up's picture

 

 

"And yes, Crude is going to 38 either by a strong dollar or the collapse & catch down to the US export numbers by terminal exports from the US industrials."

If it goes to 38, it won't be for those reasons...

It will be because of MANIPULATION, Plain and simple!

Mon, 03/09/2015 - 08:01 | 5868847 Took Red Pill
Took Red Pill's picture

deja vu (3 days ago)

Sat, 03/07/2015 - 09:47 | 5864344 Bemused Observer
Bemused Observer's picture

Saudi Arabia has a bit of a problem. They have a huge welfare state that functions to keep their Wahabi extremist elements mellow. They need money, and lots of it.
Lower prices will force them to increase output, because there is simply no possibility of cutting the Saudi entitlement programs without losing the Kingdom. And if it gets too desperate, US involvement, especially THERE in the home of Mecca and Medina, would lead to the kind of thing that would shut down the world oil markets for awhile.
So, the US won't really be able to do much if the House of Saud loses their grip on power. I'm sure they know that. So, it's drill baby, drill...gotta keep that money flowing in, and the jihadis flush with bennies.

Fri, 03/06/2015 - 17:47 | 5862871 flacon
flacon's picture

Sunday night OPEC will announce cuts in production, propelling USO higher. Every day is a good day for market manipulation. 

Fri, 03/06/2015 - 17:57 | 5862902 Hohum
Hohum's picture

OPEC?  I thought it died Thanksgiving Day 2014.

Sat, 03/07/2015 - 02:03 | 5864055 Carpenter1
Carpenter1's picture

The same OPEC that took all of 20 mins to counter Nigeria's suggestion of cuts?

 

Bulls getting desperate. 

Fri, 03/06/2015 - 16:49 | 5862601 HedgeAccordingly
HedgeAccordingly's picture

FOOD for thought.. "

ETF SSF Volume -59% v yr ago"

http://hedgeaccordingly.com/2015/03/single-stock-futures-exch-onechicago...

Fri, 03/06/2015 - 20:54 | 5863444 Wild Theories
Wild Theories's picture

ETF vol -59% from previous yr

SSF vol +53% from previous yr

Fri, 03/06/2015 - 17:19 | 5862751 l1b3rty
l1b3rty's picture

I suspect gold might follow these trades and start moving up.

Fri, 03/06/2015 - 19:01 | 5863103 Bossman1967
Bossman1967's picture

Funny they wont let gold go up period the sane people might get rich cause we played it safe so never

Fri, 03/06/2015 - 16:31 | 5862539 Greenspazm
Greenspazm's picture

Get the butter....

Fri, 03/06/2015 - 16:37 | 5862562 davidalan1
davidalan1's picture

Never have I seen soooo many investors, both professional and rookies talk about how Oil is the place to be..i.e. "it can ONLY GO UP"? lmao

Fri, 03/06/2015 - 16:41 | 5862573 KnuckleDragger-X
KnuckleDragger-X's picture

Watch the butt clowns on TV, believe what they say, do what they say, lose your ass, repeat.....

Fri, 03/06/2015 - 16:44 | 5862584 FieldingMellish
FieldingMellish's picture

Its been working for the USD for at least 6 months. Wall Street and the financial talking heads have been dollar bullish for months and have been absolutely correct. Sometimes we let our confirmation bias get the best of us.

Fri, 03/06/2015 - 18:17 | 5862962 daveO
daveO's picture

QE bias is all that matters.

End QE= strong dollar, weak oil. 

Next QE= strong oil, weak dollar.

Sat, 03/07/2015 - 10:08 | 5864365 TrulyStupid
TrulyStupid's picture

Assuming QE actually works to increase velocity and quantity of money in circulation (liquidity).

Fri, 03/06/2015 - 17:05 | 5862683 Sudden Debt
Sudden Debt's picture

You seem to be forgetting that it’s only US oil and that the fracking wells will start to deplete in 6 months from now causing a massive shortage Of oil.

And the stockmarket? It’s mostly 6 months trading into the future, not at what’s happening now, that’s what simple investors don’t grasp.

Sat, 03/07/2015 - 00:42 | 5863955 Oldwood
Oldwood's picture

But what if six month projections for the stock market are wrong? What if growth continues to fail and oil demand continues to fall. Trends can be self fulfilling. I find it annoying that we presume ANYONE buying stock knows anything more than anyone else? Their belief in future growth can actually create some growth in a relatively healthy market, but that ain't this. Their optimism can definitely take the stock market higher but be meaningless to the real economy. Oil markets are real as we actually consume oil. No one consumes stock so it can be absolutely faked. When oil is stockpiled everywhere, at some point no one will buy. You just can't fake demand for long.

Sat, 03/07/2015 - 05:14 | 5864196 Sudden Debt
Sudden Debt's picture

I’ve been in 6 European capital cities in Europe in the last 2 weeks and bizz is a bit down yes but traffic jams are rampant everywhere and trucks line the highways everywhere to.

and they use oil. A shitload of it.

And if you have 400 million cars driving the road, using 10 to 20 gallons a week, those reserves mean nothing.

I you live in the bush you can say: hmmm... not much economic activity here....

But in the big cities... man o man!

Mon, 03/09/2015 - 07:55 | 5868840 tarsubil
tarsubil's picture

Don't be fooled. People see you're in town and tell each other to look busy. 

Sat, 03/07/2015 - 02:05 | 5864059 Carpenter1
Carpenter1's picture

Those same wells that there's 1400 of, waiting to be popped?

 

Ignore SD, he's been calling for $200 oil for, what, 6 months buddy?

Mon, 03/09/2015 - 08:26 | 5868894 Wild Theories
Wild Theories's picture

no he has never called for $200 oil. In fact I don't recall anyone on ZH(outside of jokes or passing trolls) ever calling for $200 oil.

if you can't even quote anyone accurately or honestly, it's time for everyone to start ignoring you for what you are, troll.

 

and just because $50, $100, $200 sound the same to you doesn't make it so, either get a clue or fuck off.

Mon, 03/09/2015 - 09:54 | 5869217 Farmer Joe in B...
Farmer Joe in Brooklyn's picture

A lot of the negative oil sentiment is really more short-term in nature.  You are very likely right when looking 6-12 months out (or longer, depending on how bad global demand is cratering).

The problem that I see in convert trading is that there has been a lot of demand (institutional and retail) for the beaten-down, over-leveraged E&P companies.  Many of these guys are still walking dead and a leg down in oil to $40 with a 6-month stay there will surely bankrupt many of these players.  They are pumping just to keep the lights on at these prices as it is.

There are likely to be more tears shed before we close the chapter in this book....

Fri, 03/06/2015 - 16:43 | 5862578 FieldingMellish
FieldingMellish's picture

If ZH says it will fall, that's a guaranteed rise.

Fri, 03/06/2015 - 16:45 | 5862587 Bell's 2 hearted
Bell's 2 hearted's picture

maybe in the short run ... but global economy swings the biggest d!ck ... and swing it will

Mon, 03/09/2015 - 09:50 | 5869206 Farmer Joe in B...
Farmer Joe in Brooklyn's picture

I hope you stick around on these message boards for a while.   I'm looking forward to your clever commentary if/when oil really does have a 30-handle. 

What other sites do you stink up the message boards on?  If you're so smart and ZH is dead wrong about everything, then why are you here at all...? 

There must be some other site for smart people like you....

Fri, 03/06/2015 - 16:43 | 5862579 Bell's 2 hearted
Bell's 2 hearted's picture

biggest weekly inventory build since 2001

biggest inventory (for this time of year) in 80 years

what, me worry?

Fri, 03/06/2015 - 17:03 | 5862678 Frank N. Beans
Frank N. Beans's picture

still waiting for that to affect my gas price (now $2.47/gal)

Mon, 03/09/2015 - 07:39 | 5868808 BandGap
BandGap's picture

Hmmmm, 80 years ago we would be building our reserves for what?

Funny, that was in he middle of a depression, too.

Maybe it's a coinicidence.

Fri, 03/06/2015 - 16:43 | 5862580 Captain Chlamydia
Captain Chlamydia's picture

WTI  $30 and  the carnage begins. I 'll hoard some beer and frozen Pizza. When Wall Street starts to panic,  I'll be enjoying myself enormously. 

Fri, 03/06/2015 - 16:51 | 5862610 Bell's 2 hearted
Bell's 2 hearted's picture

crude going lower ... a lot lower

 

reason?

 

production.  inventory so high because little/no production cut backs in the face of slumping demand

Fri, 03/06/2015 - 21:56 | 5863583 DaveyJones
DaveyJones's picture

production is one thing

the cost of production is another

speaking of production, how many producing countries have peaked?

http://peak-oil.org/peak-oil-reference/peak-oil-data/production-and-peak-dates-by-country/

this is all a temporary game

a very short sighted stupid game with the most important "commodity" in the world 

Sat, 03/07/2015 - 04:33 | 5864176 blabam
blabam's picture

Wait, supply and demand  is now considered a very short sighted stupid game? 

Fri, 03/06/2015 - 16:44 | 5862585 astoriajoe
astoriajoe's picture

is it just me or when the 2nd/1st premium fell back down in 2011, USO seemed to do pretty well (I'm assuming that second chart is price)

Sat, 03/07/2015 - 03:34 | 5864143 duck dodgers
duck dodgers's picture

USO underperforms during contango and outperforms during backwardation.

Fri, 03/06/2015 - 16:50 | 5862609 davidalan1
davidalan1's picture

On another note, Boy would I hate to be A HUGE diesel, jet fuel user that locked in 6 month future contracts back in Sept 2014 to the tune of millions of gallons when it was at 80-100bbl...yikes

Fri, 03/06/2015 - 17:25 | 5862777 Fun Facts
Fun Facts's picture

The gangbanksters are robbing ETF's like these by trading futures intermarket calendar spreads against the ETF.

There probably should be a law against it but you know how that goes.

Sat, 03/07/2015 - 03:31 | 5864140 duck dodgers
duck dodgers's picture

Please explain.

Fri, 03/06/2015 - 17:25 | 5862778 herman55
herman55's picture

Yesterday, Thursday, the price of some lease acres in the Bakken--Bakken hot zone 4 county area--- went to ZERO. YES, HOT ZONE LEASE ACRE PRICE WENT TO ZERO. How? Lease acres bought late last year and the buyer "elected" to participate in the costs of drilling these acres. Now, he doesn't want to cover his share of the drilling costs and wanted to sell his acres.....no buyers at any price. He offered to give the acres ....give them away.....nobody would take them.

And that my friends is unheard of out here in the Bakken.......truly incredible.

He owned 2% of the lease acres; the well was going to cost $8million; he didn't want to pony up $160,000.00 only to watch the well, maybe, sit there as "bored but not fracked" and not knowing how or when he could get his cash back.

Brutal out here in the prairie wind.

Sat, 03/07/2015 - 01:59 | 5864049 Teamtc321
Teamtc321's picture

2% for 160,00.00, I'd be out also. Idiots game....

Sat, 03/07/2015 - 09:51 | 5864350 post turtle saver
post turtle saver's picture

and this, boys and girls, is how leverage kills productivity

Fri, 03/06/2015 - 17:31 | 5862803 juggalo1
juggalo1's picture

I remember when oil prices were running up, and I looked at the US oil fund.  They couldn't keep up.  The problem is they roll over their contracts in a predictable period, which led to them getting front run every month.  If the fund gets larger the opportunity and losses for long term holders gets even worse.  Don't know if they ever fixed the issue.  I haven't considered an oil investment in a long time.

Fri, 03/06/2015 - 18:21 | 5862975 daveO
daveO's picture

ETF's behave similar to their underlying options. Short term only. They will never keep up. Built in bankster skim. 

Fri, 03/06/2015 - 18:55 | 5863087 Tom Servo
Tom Servo's picture

Right - you always lost money on USO due to contango, USL was a better "buy and hold" option then... not sure about it now though...

 

Fri, 03/06/2015 - 19:09 | 5863123 revjimbeam
revjimbeam's picture

is it time to take out a car loan and buy oil? can someone check CNBC

Fri, 03/06/2015 - 20:09 | 5863308 Chauncey Gardener
Chauncey Gardener's picture

Only if you buy a VW TDI Diesel. They're practically giving them away. Great mileage with high price diesel, umm, never mind. How 'bout an F150? You ownly have to pay list price...

Sat, 03/07/2015 - 02:46 | 5864108 glenlloyd
glenlloyd's picture

Don't know about your tdi (if you have one) but the cost per mile on mine is a lot lower than I could get with a comparable gas car. In most instances now diesel is within 40 cents of the cheapest ethanol blend gasoline.

Mon, 03/09/2015 - 08:07 | 5868858 TalkToLind
TalkToLind's picture

Shhh.  The PTB don't want the sheep to know about those TDIs...they want the proles to buying Teslas and Chitvy Volts.  

Mon, 03/09/2015 - 07:46 | 5868828 lakecity55
lakecity55's picture

Miss Barrie here. Yes! Take that car loan. There is too much oil in the world today. Why it is even being stored offshore in tankers! This oil will spoil if not used (/s). Using my pen and phone, beginning next week, the less fortunate of our citizens will receive The Oil EBT, good at any US gas station!

My Oil EO will put people back to work, operate our refineries, and give the less fortunate Free Gas!

Fri, 03/06/2015 - 20:35 | 5863378 backwardation
backwardation's picture

front month higher than the back we call backwardation...so think the writer drank bit too much

because of the cold in the US we have short term backward market, watch the spreads collapse in 2 months

and see CONTaNGO as big as in 2008/9 (for the writer...front lower than backs...)

 

 

Fri, 03/06/2015 - 20:40 | 5863400 backwardation
backwardation's picture

sorry..talking 10 ppm diesel europe...backwardated

 

Fri, 03/06/2015 - 20:55 | 5863437 Yen Cross
Yen Cross's picture

 I'll do some "chart teaching" before I nap.

 Mustabeen Greek ? (afterlife)

 Okay Bitchez, look at the top (2) charts :exhibits.

 What deviates?

 Chart#1 shows a spike that doesn't correlate with chart#2/ WHY?

 Shares "outstanding" #A plunged vs "shares -Premium" #B last month.

 WTF?  Margin/ Margin why? Currency War!

 

Fri, 03/06/2015 - 21:19 | 5863497 Irishcyclist
Irishcyclist's picture

Despite the fall in the price of crude, any fall is offset here in Europe by the increase in the value of the dollar, which means that prices at the pump have actually increased since the Euro fell against the dollar

Can't buy a break anywhere these days

 

Fri, 03/06/2015 - 22:19 | 5863524 Yen Cross
Fri, 03/06/2015 - 21:35 | 5863540 rickv404
rickv404's picture

I'm sure they'll be happy by the end of the year when oil will be back over a $100.00.

Fri, 03/06/2015 - 21:41 | 5863559 Who was that ma...
Who was that masked man's picture

What year is that? Not this one for sure.

Sat, 03/07/2015 - 09:35 | 5864330 Bemused Observer
Bemused Observer's picture

I doubt that. Oil went down for reasons that make a rise back to 100 unlikely, for a long time. The only thing that can do it is a bout of serious inflation that takes everything else up, in which case it wouldn't really be an increase, just keeping up.

We are in the age of lowered expectations, all around.

Fri, 03/06/2015 - 22:03 | 5863622 DontFollowMyAdv...
DontFollowMyAdviceImaDummy's picture

I bought some oil stawks today... but only because I believe the islamofacists/cia are about to get all blowuppy again and will attack an oil field or two that's "controlled by the infidel"... and the second that happens hello $100+ oil again.

I hope I'm wrong but it seems like this is a prime opportunity for moar war  :-/

Mon, 03/09/2015 - 07:41 | 5868812 lakecity55
lakecity55's picture

100$ ? First they have to take it to 20$ to ruin everyone invested at 100$. Then, they will take it to 200$ to fuck everyone else.

That's how they roll.

Fri, 03/06/2015 - 22:04 | 5863624 ricky663
ricky663's picture

Let's see...
Yearly Chart of USO down ~50%.
Crude oil pricing approaching multi year lows (you think it will go to zero? Or maybe the oil companies will "NIRP" us and pay us to use it?!?!)
And you want me to go short?
lMAO

Fri, 03/06/2015 - 23:09 | 5863654 Yen Cross
Yen Cross's picture

 Well Done

I suggested $usd softness last week? Look at my posts

 Excluding CL contango? I'd be long CL for about 2-3 hours.

 CL is going lower. MUCH lower.

Mon, 03/09/2015 - 07:38 | 5868805 lakecity55
lakecity55's picture

You may be right. Miss Barrie may give out 'oil EBTs' to the FSA.

"He gonna fill mah tank!"

Sat, 03/07/2015 - 01:34 | 5864026 hedgiex
hedgiex's picture

Thank You. Miss the ETF chart. Even if the contango is supported by yield chasing funds, these funds (I believe) will wake up to safer terrains to pick pennies. Will act. Building shorts on RMB. Any caution here ?

 

Sat, 03/07/2015 - 01:47 | 5864040 Bear
Bear's picture

Why not short USO and buy forward month CL?

Sat, 03/07/2015 - 06:17 | 5864213 Bearwagon
Bearwagon's picture

Every sausage has only one end, you see?!

Sat, 03/07/2015 - 09:20 | 5864318 Wahooo
Wahooo's picture

And now for a new episode of Cryler's "Sad Money." Be sure and sell low!

Sat, 03/07/2015 - 10:34 | 5864384 Woodrox
Woodrox's picture

How bout screwed both ways, backwardation for the sellers and contango for the buyers, expectation of future price is wrong for both:)

Mon, 03/09/2015 - 09:29 | 5869123 jpintx
jpintx's picture

WHAT IS THE ORIGIN OF THIS CHART?????  When I look at futures quotes as of 0926 Monday 3/9/15 I see April Crude at 4955 vs May Crude at 5130 which equals a 1 vs 2 contango of 175 NOT 400   

 

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