United States 12 Month Oil (AMEX:USL)

wtihedge (87.74) Submitted: 6/29/2011 12:47:04 AM : Start Price: $42.75 USL Score: -7.89

strong dollar will slow it down, but the not so big secret is that production is barely keeping pace in a week world... finite amount. $100+ in 6 months.

frogfishfool (< 20) Submitted: 5/11/2011 9:17:36 PM : Start Price: $43.92 USL Score: -7.45

Oil consumption will continue to rise in Chindia and other countries with a rapidly growing middle class. Alt energy won't constitute a major share of the supply for the better part of a decade. Global oil wells are peaking. Despite ups and downs from global economic moves, prices will rise over time.

Southoftheborder (< 20) Submitted: 2/16/2010 3:24:49 PM : Start Price: $38.74 USL Score: -17.23

Oil is going up.

obobby1 (40.19) Submitted: 1/3/2010 8:51:01 PM : Start Price: $41.33 USL Score: -20.78

Oil just has to go up sooner or later

Zencyclone (30.02) Submitted: 8/21/2009 11:14:04 AM : Start Price: $37.62 USL Score: -35.18

Peak Oil! It's real!

TMFUltraLong (99.98) Submitted: 3/24/2009 8:40:07 PM : Start Price: $27.45 USL Score: -52.12

Oil and energy in general should continue to be a leader in these markets and will help to pull us out of this recession. I feel we'll see oil move into a general trading range of $57 to $72 before the year is out as this is a more true representation of its price range over the last few years.

UltraLong

SideShowMel0329 (43.00) Submitted: 3/2/2009 5:12:06 PM : Start Price: $26.20 USL Score: -35.07

Oil is still scarce, recession has forced it down.

volatilitydecay (52.87) Submitted: 2/14/2009 9:57:18 AM : Start Price: $26.43 USL Score: -16.37

This is a slight departure from pure VIX or leveraged ETF decay play. However the theme is the same.

Paired pick:USL,USO. USL: 5Y Outperform and USO:Unspecified Underperform - why?

Like the VIX ETNs(VXX,VXZ) , most Basket Commodity ETF/ETNs ( dealing with Oil, Ag,Base Metals - not Gold) - are Non-leveraged investments in a DERIVATIVE product - hence Volatility ( due to the non-perpetual nature due to expiration of the derivative) starts having its say.

Basically since they hold secondary instruments that provide exposure to the underlying entity (OIL in this case) and to maintain that - they need to constantly Buy/Sell ( Rollover) contracts as they near expiration.

USO: It holds its entire investment in the FRONT-MONTH Oil futures - ie it has to Rollover - sell the near month and buy the next month , on a monthly basis - on 100% OF ITS HOLDINGS. Thus it is subject to Volatility thru Price fluctuation during this Turnover process on its entire holdings. This happens both ways -

CONTANGO: When on the date of rollover, there is a distinct price JUMP from near to front months - eg, recently(in Jan) Feb 09 was at $38 around expiry while Mar 09 was around $42 - more than 10% higher or CONTANGO ie simply put like the Fool you are every other Fool also thinks Oil prices will rise in future. Thus every consecutive Calendar Oil future contract are Jump higher and called in CONTANGO ( Puts my head in a Tango - how they come up with these names I dont know!)

BACKWARDATION: It is the reverse of Contango ie every consecutive future months being subsequently jump lower in price - this happened during the crazy summer months.

OUTCOME: Simple you win with USO in Backwardation when Oil's on a tear - because what happens is in that intervening month - if Oil gains big - you made out by paying a lower start price.

You LOOSE BIG in current environment - because Oil is at a huge contraction and CONTANGO premium is simply eating into your contrarian play of betting on Oil.

Again a play on volatility premium.

Why USL? - Same MLP company and this one spreads your risk - by splitting your investment into 12 equal parts into 12 forward month contracts. Thus USL also needs a monthly rebalance which is subject to contango - but it only needs to do it on 2 contracts ( ie 1/6 ~15% of HOLDINGS) - the +1 and the +13 and the great news is - Contango jumps are much lower in the longer term futures ( ie the +13)

Of course USL will not work so well in Backwardation - but then again - if we get severe backwardation - we will have 100s of other things to worry about

murderofone (47.61) Submitted: 2/14/2009 7:43:45 AM : Start Price: $26.43 USL Score: -16.37

Oil price rebound ahead.OPEC cuts in production,stimulus bill,summer coming.American consumption will start rising in 2009.