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Many Big Guns Still Betting On Oil Comeback In 2015

Tyler Durden's picture




 

Submitted by Henry Trinh via OilPrice.com,

Surprisingly, the flow of crude oil is still accelerating, much like the money going into crude oil funds. Three of the largest crude oil funds include USO, OIL, and UCO. UCO is unique due to the fact that it’s an exchange-traded fund that uses leverage, mostly in the form of derivatives, to correspond to twice (200%) the daily performance of its underlying benchmark, the Bloomberg WTI Crude Oil Sub-index. Since the fund corresponds to 2X the daily performance rather than total performance of its underlying index, mainly day traders, hedge funds, and speculators predicting an oil rebound would invest in such a risky investment. Considering that UCO has a total return of -81.29% since June 2014, the rewards are great for those investing in this fund in a crude oil bull market; however as the statistic shows, a leveraged fund could also destroy a portfolio if their predictions are wrong.

With the fears of oil inventories rising to record levels and OPEC refusing to cut its production, the price of crude oil is still facing global downward pressure. Bearing in mind these factors, there seems to be no clear sign of a bull market for crude oil in sight. Nonetheless, not everyone agrees with what the market is doing. Many large financial institutions have large stakes in UCO and thus are still betting that crude oil can make a comeback beginning in 2015.

Let’s examine the top ten firms with the greatest stake in UCO, based on information from each firm’s 2014 4th quarter 13Fs.

GreatestStakesInUCO

The amount of money that these bulge bracket hedge funds and asset management firms are pumping into the crude oil market, more specifically UCO, is astounding. The risks of investing in a leveraged-ETF cannot be stressed enough. Losing 81% of a client’s portfolio would damage a firm’s reputation beyond repair. Even so, many firms are still choosing to invest hundreds of thousands and in Goldman Sachs’s case, millions in UCO overlooking the fact that the ETF tends to move between 5- 20% on a daily basis these days.

Analysts’ 2015 predictions for crude oil have ranged from $30 to an average of about $60 per barrel of WTI crude oil. With the current price of $49 and considering the massive oil glut, most investors are still bearish on crude oil. Contrarians such as Goldman Sachs and Deutsche AG are not as bearish based on a few projections. Quite frankly, Goldman Sachs does not see the current price of oil as being sustainable. The firm expects the global oil industry to face a loss of $1 trillion over the next decade if the price remains below $60 per barrel. Besides this, contrarians are also expecting conflicts in the Middle-East to play a large role in boosting the price of crude oil through a reduction in supply channels.

As a retail investor, it can sometimes be challenging to understand all of the moving pieces surrounding our investments, especially without access to an expensive wealth advisor. Thus, by observing where institutional investors are putting their money, retail investors may be able to get a sense of what both the market is doing as well as contrarians. Based on the fact that the most recent 13F displayed major holdings from the 2014 4th quarter, the upcoming 13F set to be released in May, will be a major determinant of each firm’s current outlook for crude oil which is something to key an eye on.

 

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Sun, 04/05/2015 - 15:07 | 5961283 raywolf
raywolf's picture

$200 oil here we come..... grab it while it's hot.....

Sun, 04/05/2015 - 15:14 | 5961291 Publicus
Publicus's picture

Abiotic oil is infinite.

Sun, 04/05/2015 - 15:24 | 5961304 Stackers
Stackers's picture

Not if it takes 200 million years to make .............

Sun, 04/05/2015 - 15:30 | 5961310 farmerbraun
farmerbraun's picture

Still , the possibility exists that there is far more oil than we currently know about , or can  retrieve.

Sun, 04/05/2015 - 16:34 | 5961358 Ham-bone
Ham-bone's picture

Still curious why the world (x-US / Canada) didn't increase global oil production (of any significance) from '05 to '15 to take advantage of the 300% + price increase???

Was it peak oil?  Peak collusion?  Peak stupidity?  Was US / Canada increases peak exceptionalism?  Other?

http://econimica.blogspot.com/2015/04/why-would-corporations-nations-leave.html

 

Sun, 04/05/2015 - 16:53 | 5961459 johngaltfla
johngaltfla's picture

Best short of the decade. These idiots fail to understand the "demand" portion of supply and demand.

Sun, 04/05/2015 - 17:07 | 5961480 aurum4040
aurum4040's picture

Actually the ruble was the best short of the decade and the USD index at 96-98 will be the best short of the upcoming decade my friend. Best. 

Sun, 04/05/2015 - 17:26 | 5961514 Divine Wind
Divine Wind's picture

 

 

 

Unless many of these Big Guns know a war is coming which will interrupt supplies,
through the closure of a major choke point...or perhaps severe damage to, say,
Saudi oil and gas infrastructure....

As has been shown repeatedly on ZH, players of this size invariably have a good idea of what
is about to go down, from advance copies of employment reports, to advance copies of Federal
Reserve speeches.

PLUS,

Players of this size typically handle the investments of world leaders, Presidents, members
of Congress, etc.. It would be foolish for these powers to endanger their own holdings by
NOT giving such institutions a heads-up.

 

 

 

Sun, 04/05/2015 - 19:08 | 5961765 daveO
daveO's picture

'players of this size invariably have a good idea of what is about to go down'

They write the scripts!

Sun, 04/05/2015 - 19:27 | 5961807 Handful of Dust
Handful of Dust's picture

Investing in oil right now is a Slippery Slope.

Sun, 04/05/2015 - 22:32 | 5962205 weburke
weburke's picture

.

Sun, 04/05/2015 - 19:28 | 5961810 sun tzu
sun tzu's picture

Best short of the decade so far are shale companies. The previous decade was dotcom companies. 

Sun, 04/05/2015 - 20:23 | 5961909 johngaltfla
johngaltfla's picture

Watch USD trade weighted broad. It will shatter the high end in about 3-4 months and go higher in September. Panic QE sex by October. THEN you are right on shorting USD or buying bearish Ultra ETF.

Sun, 04/05/2015 - 17:01 | 5961471 aurum4040
aurum4040's picture

Other then Iraq currently drilling highest production since 1965, there wasnt enough time to explore, find, fund, drill, etc. enough new wells in other countries to make a significant difference. The US obviously has/had no choice after the oil 'experiment/middle class con job' between 2005-2008 other than production explosion/ attemt to bring outspoken $USD hater number 1 Russia to its knees, US driller bankruptcies, financialization of oil, their junked bonds, and contaminated fracking soil be damned. The US is in desperation mode in many ways, oil being one. So yeah, it was peak exceptionalism ;) 

Sun, 04/05/2015 - 19:32 | 5961816 sun tzu
sun tzu's picture

Technology and politics. How much oil was taken offline by Venezuela's nationalization of oilfields? How much was taken offline by the Iraq War? How about the sanctions on Iran?

Sun, 04/05/2015 - 17:20 | 5961504 Urban Redneck
Urban Redneck's picture

Oil doesn't care about lines on maps, but governments and oil companies do.  The problems is the costs of extraction aren't necessarily just financial, there can be political or blood costs for the parties involved, but sustained higher oil prices would be conducive to certain parties resolving their differences amicably, whereas if they don't see the near term profit, there isn't any motivation to set aside differences and cut a deal.

Sun, 04/05/2015 - 19:56 | 5961862 FrY10cK
FrY10cK's picture

Yes and fictional as well.

Sun, 04/05/2015 - 15:09 | 5961285 q99x2
q99x2's picture

They own the central banks so of course the stocks will come back. They don't need much of a company for that. All they need to do is use the FEDs software.

Sun, 04/05/2015 - 15:28 | 5961306 usednabused
usednabused's picture

And if they are wrong, and made this bet after their last coke party, well the fucking taxpayers can have the loss. Isn't that their real business plan?

Sun, 04/05/2015 - 17:28 | 5961513 Urban Redneck
Urban Redneck's picture

But are they wrong?  and, more importantly what is their true net exposure?  If there is a larger short position that they aren't required to report, then "What difference does it make?"  to quote a certain cattle futures trader...

(and if they are using oil as a proxy for something else, say to hedge a currency or a different commodity, then it becomes a nightmare to find the "truth" if you are on the outside, which is exactly how they like it)

Mon, 04/06/2015 - 07:44 | 5962787 Carpenter1
Carpenter1's picture

$100 oil was a 5 year aberration, not the norm. Every commodity boosted during QE, and now it's over. 

 

Sun, 04/05/2015 - 15:17 | 5961293 kaiserhoff
kaiserhoff's picture

Futures are still predicting ~ $60/barrel one year out.

Conversion to nat gas continues apace in fleet vehicles.  The USPS is about to order a new generation of delivery vehicles.  That's something to watch.  Could be a game changer, because the fuel stations would become ubiquitous.

Sun, 04/05/2015 - 19:36 | 5961822 sun tzu
sun tzu's picture

They will have a natgas fueling station on the USPS property. Alternative fuels and tighter CAFE standards have led to a 10% drop in US oil consumption since peak oil demand in 2006. 

Sun, 04/05/2015 - 15:16 | 5961295 One And Only
One And Only's picture

UWTI is where it's at - 300% WTI

Sun, 04/05/2015 - 15:18 | 5961297 cigarEngineer
cigarEngineer's picture

Five-million-dollar position "astounding"?? Jump Trading's $500k position is someone probably went to the john and forgot the market closed early on Friday. Get out of here with this click-bait shiit

Sun, 04/05/2015 - 19:11 | 5961771 daveO
daveO's picture

12/31/14 Now, less than $4 million ,if they still have it.

Sun, 04/05/2015 - 15:22 | 5961303 henry chucho
henry chucho's picture

The entire Mid-East going up in flames,but since Goldman says this is no threat to supplies,the futures market sells off on the news.Meanwhile,back on the farm,Frackers are losing their asses,but Goldman says this is no threat to supplies,and oil sells off..

Sun, 04/05/2015 - 19:41 | 5961835 sun tzu
sun tzu's picture

Yemen is ranked 37 in oil production. Hardly the entire middle east. The rest of the middle east is relatively stable compared to the last 10 years. If sanctions against Iran are lifted, then Yemen won't even matter. 

Sun, 04/05/2015 - 15:28 | 5961307 magnetosphere
magnetosphere's picture

$5 mil?  WTF.  try looking up nymex volumes dumbass

Sun, 04/05/2015 - 15:30 | 5961309 usednabused
usednabused's picture

Boo fucking hoo Chucho. Peak oil was a fucking lie stuffed up your ass. Crap it out and get on with life.

Sun, 04/05/2015 - 15:44 | 5961340 iofera
iofera's picture

Zeroes, the only "peak [insert whatever]" with any truth to it is peak virility.

You limp dicks!

Sun, 04/05/2015 - 22:56 | 5962286 Hohum
Hohum's picture

usednabused,

The peak net energy from oil extraction is long in the rear view mirror.  But, in the long run, that's what counts.

Sun, 04/05/2015 - 15:33 | 5961318 i_call_you_my_base
i_call_you_my_base's picture

It's only risky now if oil drops a lot further. Seems unlikely. Not that I'm buyin'.

Sun, 04/05/2015 - 19:45 | 5961838 sun tzu
sun tzu's picture

It's risky because even if oil stays flat, then you lose your ass. These funds buy futures. If spot prices aren't higher than the contract price at expiration, then the contract is worth zero. It's like buying a fund that invests in out of the money call options.

Let's say they buy a future contract a year out at $60. Even if oil goes from $50 to $60, the contract is worth zero. 

Sun, 04/05/2015 - 15:34 | 5961320 Rusputin
Rusputin's picture

Against the Dollar and Euro crude will make a comeback after May, but only on currency weakness. Production will increase from Nigeria, Yemen, Iran and Russia, but nothing compared to the coming currency collapses. Not-Euro-Dollar will see crude, energy and commodities rise, whilst the strong currencies will wonder what the fuss is all about.

Sun, 04/05/2015 - 15:35 | 5961324 orangegeek
orangegeek's picture

Just sitting at my screen while talkin' my book.

 

 

Sun, 04/05/2015 - 15:39 | 5961332 iofera
iofera's picture

Vlad's malingering in front of the Tverskaya Boulevard Western Union pestering the clerk every few minutes to see if a Zero Hedge care package has come through for him and his handlers.

Folks, you can't send him money a couple of times and expect you've washed your hands of him. This is a life-long commitment. We really need people to step up to the plate here!

Sun, 04/05/2015 - 15:56 | 5961376 Max Steel
Sun, 04/05/2015 - 15:40 | 5961334 davidalan1
davidalan1's picture

Not this big gun--

Sun, 04/05/2015 - 15:45 | 5961345 disabledvet
disabledvet's picture

Buck a barrel here we come.

Goldman ain't gonna make it would appear.

Sun, 04/05/2015 - 15:47 | 5961349 lolmao500
lolmao500's picture

Well...

Arab intelligence agencies tell European countries that Irans military is ready to close Strait of Hormuz if nuclear talks fail. - Ch. 10

Sun, 04/05/2015 - 15:49 | 5961356 buzzsaw99
buzzsaw99's picture

sorry but 5 mil isn't even a full position for the squid. bankfeind has moar than that in his sofa cushions. who knows if they are net long or short for sure? not me.

Sun, 04/05/2015 - 16:10 | 5961380 juicy_bananas
juicy_bananas's picture

When Israel strikes Iran, oil will go to 500.  But only if Netanyahu can keep it in his pants until the October surprise that is.  Get your 72 virgins ready now, boyos.

Sun, 04/05/2015 - 16:03 | 5961389 roadhazard
roadhazard's picture

And just why would the price of oil go up, Peak Oil again. They have blown that excuse to hell for the scam I knew it was.

Sun, 04/05/2015 - 19:47 | 5961845 sun tzu
sun tzu's picture

Biggest scam since globull warming. It's certainly the longest running financial scam, going since 1920.

Sun, 04/05/2015 - 16:04 | 5961393 Sanity Bear
Sanity Bear's picture

AKA betting on war in the Middle East

 

not a bad bet I'd say

Sun, 04/05/2015 - 16:05 | 5961395 lbrecken
lbrecken's picture

Oil still flowing is that why last week oil production DECLINED last week by 36k?  I have never seen this level of misleading media rpts in my life.... Wake up

Sun, 04/05/2015 - 18:04 | 5961578 The Shape
The Shape's picture

And why did it decline by 135k barrels a day in January? This place still hasn't reported on production declines.

But tell a lie often enough and and you'll make money off it.

Sun, 04/05/2015 - 18:22 | 5961643 thecrud
thecrud's picture

I think it is you who fails to see this clue as to just how much over production there is.

Wait till it hits pre Nixon price 1.40 what will theproblem be then. All US production could stop and there will still be a global glut.

Peak demand is in the rear view.

 

Sun, 04/05/2015 - 16:12 | 5961401 pakled
pakled's picture

Goldman Sachs is holding 525,372 shares. If that number can believed it puts the value today at $3,914,021.40 given a last at $7.35.

 

< 4 Million dollars?

 

Pocket change

Must be what.. a hedge on some minuscule portfolio?

Why would Goldman help unleash the dogs of war in the Middle East over such a pittance?

Or if you don't give them enough credit to do so... why are they effectively betting no major war (and the resulting panic price increase that makes a leveraged position like that worthwhile)

What do these thieving banks know???

 

Sun, 04/05/2015 - 18:22 | 5961642 moratar
moratar's picture

Exactly, if they have 4m$ how can they have "loss of $1 trillion" this dosn't adds up. Where is that possible 996m $ lose coming from?

Tue, 04/07/2015 - 05:36 | 5966010 hairInTheSoup
hairInTheSoup's picture

it's leveraged

Sun, 04/05/2015 - 16:31 | 5961412 DipshitMiddleCl...
DipshitMiddleClassWhiteKid's picture

there is no demand for crude but if the vampire squid is piling in, i may have to reconsider my CAD dollar shorts.

 

 

Sun, 04/05/2015 - 16:59 | 5961469 paint it red ca...
paint it red call it hell's picture

Its a suckers bet.There is a reason storage is maxed out and it ain't because the economy is looking up.

Not if, but when, the $ house of cards goes down, crude oil products will be sprayed liberally on the economy to quell the angry mob.

If the oil does not satiate them first, only heads and blood will. And nobody whose head and blood is at risk wants that...

Sun, 04/05/2015 - 17:53 | 5961559 devo
devo's picture

They're probably not betting on an fundemental oil comeback, but rather dollar getting hammered. It needs to, and soon.

Sun, 04/05/2015 - 18:06 | 5961586 rickv404
rickv404's picture

The banks know Yellen is going to come through for them. All this continued spending out of Washington has to be covered. Inflation has to increase.

Sun, 04/05/2015 - 18:25 | 5961650 thecrud
thecrud's picture

Cant no matter how much they print because China acts as a pop off valve any time it trys.

In fact the harder they try the bigger the bubble it creats is til it pops and in return you actually get hyper deflation.

Just wait and see.

Sun, 04/05/2015 - 18:11 | 5961604 thecrud
thecrud's picture

No other possible/plausible explanation.

Sun, 04/05/2015 - 18:31 | 5961666 Oldwood
Oldwood's picture

What would the price of any thing be without the gamblers?

Sun, 04/05/2015 - 20:08 | 5961882 cpnscarlet
cpnscarlet's picture

Considering the downside risk of further global slowdown and the upside risk of geopolitics, and the fact that this may be another rigged trade by the collusion of banks and governments...

Just take your oil money and BUY GOLD.

Sun, 04/05/2015 - 22:10 | 5962150 Zodiac
Zodiac's picture

For a number of the firms on the list, it is meaningless to examine only the long position in oil without examining what short posittions they may also have.  The net long/short position is the only thing that matters and this article fails to address that.

Also, postions may change at any time -- a standard warning always given by promoters of any asset class.

Sun, 04/05/2015 - 22:26 | 5962202 Hohum
Hohum's picture

The flow of crude oil is accelerating?  Where?  Not in the USA.  I don't even think it's increasing, but if I am wrong I am confident it's not "accelerating."

Mon, 04/06/2015 - 08:04 | 5962825 ductape
ductape's picture

This article is so silly.  They were short as of end of 2014. It's already into 2qtrs past the reported date. Are they still long using futures that lose money over time? And maybe it's also a hedge againts short positions. This author shouldn't have wasted anyone's time. Although bulls in here will be stoked of course. There is always a comfort in numbers.  I'm not long or short. No one knows!

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