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Oil Price ETFs
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About Oil Price ETFs |
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Oil Price ETFs Overview and forecast
The most active, toughest of the price ranges, the oil market is the one investment on Earth where you'd expect to find a sign saying Thin Ice. This market has had severe criticism from both inside and outside for its practices. Oil prices have earned some utter contempt from industry regulars and clients for the bases of its moves. An oil pipe in Nigeria somehow drives up global oil prices, etc. Oil futures were said to have been raised drastically by hedge funds driving up the prices to their ridiculous levels in 2008.
The oil prices were seriously penalized for this behavior, and have taken the Oil Price ETFs for quite a ride. These ETFs have been massive traders since the oil price boom and bust, but with some Oil Price ETFs having price ranges of nearly -$100 per unit since the crash, you'd have to say the adrenalin must be more attractive than the prices.
The Oil Price ETFs trade in millions. They're among the biggest of all ETFs, with the full range of trading options available. This was arguably the biggest price boom in history, and the bust was equally spectacular. In future investment training, the oil price boom will be used as an example of how to recognize a bubble when you see one. The oil market is famous for its rises and falls, but this was special. In this case it exposed a weakness in the investment models while it was at it.
Short term (6 months)
The phrase Sucker Bait definitely applied to the top price ranges, which were almost 400% of the previous ranges, and quite rightly causing howls in the consumer market about unsustainable pricing. As investment practice, buying at the top of an obviously overheated market, particularly in commodities, is asking for trouble. Arguably, oil is still overvalued, and being propped up by traders, rather than the industry.
There is always short term risk in oil. Even the Oil Price ETFs, which are operated by experts, using futures and every investment methodology available, have been performing on a pretty slippery surface. Many of the Oil Price ETFs deal with futures, and that has added a level of difficulty, with oil futures as the high movement zone. Hence the patchy looking set of returns on our table of returns for these ETFs. The short term view is Limited Risk, with capital letters. These investments make sense in spreads, but not in big plunges in a hypertensive market. Traders may do well in the short term, but only with both eyes open.
Medium term (2 years)
The long reign of oil as a supreme all- powerful fuel is coming to an end, but that's not the end of it as a commodity. Oil, as carbon, is far more valuable in just about any other form than as fuel. It will take the oil industry, which is notorious for its lack of innovation and comprehension of the new science, a while to catch up. The recent effort at pricing itself out of the market is another symptom of a culture which has to change.
That's not going to happen in the medium term, but oil is facing a major shift in emphasis away from traditional roles. How well, and how fast, it adapts to the new economic environments which will emerge during the recovery will start to show in the medium term. It'll be business as usual with a few new elements moving in. LPG, hydrogen, and electric cars will start to eat into the fuel market in small nibbles.
Investors don't have to put up with the neuroses of the oil market, either. The oil investment market is looking like a cross between a fallen Mammon and a spoilt brat, and it's not about to get thanked or trusted unless it's delivering returns, and delivering them well. The medium term could be the beginning of a long overdue change in the relationship between the investment markets and the oil industry.
Long term (5 years)
If the medium term is likely to bring change, the long term will demand it. Unless the world's investment markets become registered charities, oil is going to have to prove it's worth the risk. Bizarre as it may seem, the oil industry in recent times has been showing symptoms of the same intractable mindsets which destroyed the US auto industry. That's not going to wash with big capital investors, who'll want to know what the industry intends to do about competition which is priced at about 20% of oil for fuel, in terms of mpg for the average car even under the new mileage terms required by the US government.
The only thing definitely in oil's favor in the long term is that it will take time to retool freight, power and other crippling oil-induced overheads to use the new energy options. Five years is too short a period to see the end of the whole paradigm of oil as it's been for the last 100 years, but it's quite soon enough to see the beginning of the end in unmistakable terms. Oil Price ETFs can expect to see big changes, and the market reception of those changes will be either positive or hostile. The risks will go up before they go down, and the long term will be the decider.
Qualifiers to projections
The Oil Price ETFs have good upsides in their lower ranges. As traders in all their investment products, they're known factors. Even their options are working traders. Oil stocks and derivatives are staples of the entire global trading market. That said, of all commodities, oil is the least trustworthy as a consistent performer. Some traders don't like the environment, or the constant fluctuations based on anything or everything. It's fair to expect the return of big capital into the oil investment market down the track, particularly in the form of arm's length spreads, but the nature of the beast won't change. This is not a market for neophytes, in any sense of the word.
The Oil Price ETFs are themselves very diverse, and some do produce quite good returns over certain terms. That's a pretty concise picture of the Oil Price ETFs as an investment. It's a bit hard to get too excited about individual investment strategies and methods in this market.
But- the good news for investors is that these ETFs are diverse enough to be worth studying as a reflection of what's working and what isn't in the oil investment area. They're a picture of a range of possibilities. It's suggested that investors do some modeling before any actual commitments.
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Last Updated on: 2010-01-14 02:03:40 |
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