Being one of the first writers in the financial blogosphere to start talking about the US Brent Oil ETF (BNO), I am gratified to report that since I first took my position on February 17th, I am sitting on a profit of 11.26%. Oil has been generally good to me as my Powershares DB Oil Fund (DBO) has garnered me 26.05% since I opened that long position on September 30th.
I don’t trade my oil positions frequently as, being much of what I call a Jim Rogers frame of mind I just don’t see much downside to holding oil on an intermediate to long-term basis. Does anyone really think oil is going to become substantially cheaper? I don’t. Emerging markets demand for power, geopolitical turmoil, inflation, reduced supplies — I just don’t see the price going down. Will I protect profits in the short term? You bet. That’s why there are trailing stops, which can be adjusted in response to changes in the market. However, for the most part, all of my portfolios will generally have a significant long position in oil ETFs.
I still feel very bullish about Brent oil, particularly as supplies of Libyan oil, also a “high quality” crude, become temporarily intermittent or non-existent. The Saudis can make up the volume but they can’t make up the quality. And, so long as Cushing, OK stays awash in oil — the only thing in short supply around there are empty oil storage tanks — I don’t see Texas overtaking Brent any time soon.
Let’s take a look at some charts to see how BNO has stacked, and stacks up against its competition. I am using DBO, the 2X leveraged UCO and the absolutely disgusting US Oil Fund, USO.
And speaking of USO, it was, I believe, Aleksandr Solzhenitsyn who reported that in the old Soviet Gulags, some prisoners would become so filled with despair that they would lower their heads and run at the walls of their cells in the hope of killing themselves. This is how it must feel to hold USO, which, being generally so contango-bound that it can’t even keep up with the underlying price of oil, is an absolute waste of portfolio space. The irony of the fact that BNO and USO both hail from the same ETF stable — US Commodity Funds — is not lost on me. Their 12-month oil, USL, would be my preference over USO, any day. But I still like BNO and DBO better.
Anyway, to the charts! Starting with the 12-month:
It really isn’t close. BNO beats all, and it only came on the market in the middle of last year. OK, so how about 6 months?:
Here the double-leveraged UCO tops BNO, but at the expense of much higher volatility. And, let’s not forget that leveraged ETFs are not really the best choice for a long term holding. There isn’t a lot of difference in return at the end of the day. How does 3 months look?
Interesting. If you made your investment three months ago, BNO handily trounces everything. 1 month? Roughly a week after I went long BNO, FWIW:
UCO has it, but by Jingo, there is some volatility, isn’t there? Interesting here that USO made a comeback in the 1-month timeframe. And how about 10-day?
BNO is the only ETF to finish in the black in the 10-day oil derby.
So, will the West Texas-based oil ETFs regain their long-term position and top Brent? Maybe, but certainly for the remainder of 2011 if you are long oil ETFs then I think you will be doing yourself a significant disservice if you don’t have a significant position in BNO. I believe the broader investment market has also become more aware of BNO, so, with greater volumes entering those contracts, I think it will take Texas longer to regain its oil ETF crown, if it ever does.