The $2.3 billion that has poured into funds that track oil since December would seem like a logical enough investment. After crude dropped more than 50 percent to a five-year low, the thinking goes, prices are due for a rebound.No word yet from Bernie Sanders on this situation.
There’s just one problem. And it’s a big problem.
The market is stuck in something called contango, an exotic term that really just means that prices on crude contracts to be delivered in coming weeks are lower than those on contracts due later. Exchange-traded fund (DBO) managers, as a result, are left to sell the cheaper expiring oil contracts and re-invest the proceeds in the more expensive ones due the following month, creating a vicious cycle that erodes returns.
Friday, January 16, 2015
The Cruel Oil-Market Math Conspiring Against ETF Bulls
Bloomberg reports:
