This has been an illuminating thread... I too averaged into ooo...

This has been an illuminating thread... I too averaged into ooo thinking I could profit as the spot price improved only to hear Erik Townsend on Macro Voices go nuts over this issue when investors in the US are buying USO. I then found this is the Same issue here. Appreciate everyone taking the time to explain how it works and point to articles.

Seems to me you make money or loose money on the divergence of the Futures curve and the trend of the spot price. If future contracts were flat month to month and the spot price went up you win, if the spot price is flat and the future price month to month increase you lose (and similarly in backwardation as the futures prices go lower month to month and if the spot price is flat you get a payout.... but if the price falls harder than the futures decline you win). So much more to think about than just the spot of oil (which was already a short term gamble).

At the same time if you can afford a very long term time horizon... we will probably revisit OOO in 2 years time and find it back at $15 and then this new found understanding was an interesting intellectual adventure but didn’t prove to be super relevant for a LT trade.

Then there is one more thing to consider, the NAV. I think that if the SP is overvalued compared to the NAV which is now we expose ourselves to additional losses until the market forces correlate this (see NAV/Unit vs Price).