Oil Price Jump Shows Inner Workings Of ETF
September 23rd 2008 at 1:00pm by Tom Lydon
The price of oil rose 15.7% yesterday, so why didn’t the related exchange traded fund (ETF) shoot up accordingly?
John Hyland, chief investment officer at the U.S. Commodity Fund, the firm behind the United States Oil Fund (USO), says that some commodity funds that deal in futures contracts actually roll to the second month before the actual expiration date.
“In our case, it’s two weeks. We sold all the Octobers two weeks ago,” Hyland says, meaning that what investors were actually looking at was the November contracts, which were up 6.62%.
Aside from the events of Monday, “we’d consider that a huge move,” Hyland says.
Hyland also points out that people who are dealing with the front month contracts on the last day of trading are typically players in the oil industry and those who actually want their oil delivered on Oct. 1.
Hurricane Ike likely had something to do with the spike, too. While not a lot of platforms were damaged in the storm, there was some delayed production and there’s not as much oil sitting around in Louisana and Texas right now.
As a result, there’s a spike in which people grab for contracts so they can take delivery. “This was kind of an anomaly mostly just driven by lingering effects of the hurricane,” says Hyland.
Oil today is down on profit-taking after yesterday’s really, reports Stevenson Jacobs for the Associated Press. But market watchers are saying that oil is showing some signs that it’s poised for another climb. A shrinking global supply, dollar weakness and nerves about the government’s proposed bailout plan could contribute to another spike, they say.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.