Why I Just Got $11,000 USO at $2. Oil ETF
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I just put $11,000 into USO Oil ETF today at just over $2. I feel like oil prices are near the bottom. There have been some massive changes recently for USO in terms of the way they do their fund. In my opinion, this is a much better situation for USO. They can capitalize much better if several out months oil price go up substantially over the next 1-2 years. By the way, there is no such thing as USO stock. USO is an oil ETF.
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Well guys, if you’re an avid watcher of the channel, you know, I put out a video about four or five days ago called why I might put $100,000 in us. So, in May of 2020 I was just flirting with the idea of possibly buying us. Oh, but here today I actually did it. Okay, we started dating us.
Oh and me We started dating officially. Okay, I bought 5200 shares in the fund here today. My cost basis on this is $2.13 roughly. Okay, I’m up a little bit afraid now about $29 I literally just opened the position like an hour or two ago. So this is going to be an interesting one to play out.
Some things have transpired very recently that have made me much more excited about us. So over time, okay, first thing I want to talk about in this video is what huge change just happened in uso that made me say I got to put $11,000 in uso here today.
Okay, the second thing I want to talk about is how much more money will I put into us so and at what price would uso have to go down to for me to put certain amount of money in it? Okay, so hope you guys really enjoyed today’s video as always smash that thumbs up on last video we did on uso hit 6797 thumbs up.
I think we can crush that in this video guys. I’m gonna be honest, I think we can go ahead and take that down. Let’s go ahead and try Okay, let’s start getting to this guys. Okay, so first off in regards to uso United States oil fund is basically you know, its job.
It’s trying to track oil prices, and it hasn’t done very well in the past. Okay, let me explain why this hasn’t done a very good job of kind of, you know, finding oil price and kind of going up or down with it. You know, recently Okay, as you can see here with this chart, uso has gone from 13 bucks to $2 in a four month span.
Okay, now this might never have happened if it wasn’t for the ronnie Rona situation. I mean, that’s caused the oil market to completely disintegrate completely fall apart. World Economy shut down. This is an unforeseen thing. I mean, you know, who knows where uso is here today.
If the ronnie Rona didn’t happen, but the fact is the Roni Rona did happen. And literally uso has gone from $13 to $2 and a four month span Okay, let me look at that. That’s that’s it that’s it literally insane. You go January it’s it’s you know $13 roughly and then by the time you know we’re getting close to march it’s at $10 it’s at five bucks by the time you know a world economies have shut down in here today.
It’s $2 absolutely crazy. Okay, and if you don’t know why you so declined so much. Let me let me explain to you in a simple terms as possible. It’s a three step process on why uso went down so much. Okay, so you so owned mostly current month oil contracts.
Okay, so when it comes to oil contracts, they always are kind of looking for the upcoming month, but the upcoming month you really consider the current month, for example, you know, we’re, we’re, you know, about to go into May, but the June contracts are currently the current month.
Okay, so they owned mostly current month oil contracts, and had to flip those into them next month contracts, they always are flipping the contracts into the next month, next month. Okay. So once those ones expire, they flip them in. Now the horrible part is, so this is horrible, because the current month kept falling.
Okay, so where they had most of their money invested in terms of the contracts, those prices continued to disintegrate. And we saw what happened with the May contracts may contracts ended up going negative, absolutely unreal. And meanwhile, uso probably paid you know, probably anywhere from 30 to $40 for those contracts, and they literally went worthless, they but they actually have the you know, whoever had them at the end had to pay to get rid of them.
So current month kept falling, they had a flippin a much more expensive monthly contracts for the next month. And this was called contain goats are pretty bad, really ugly situation. And then those contracts after they buy them would start to fall and fall and fall until they would get rid of them.
And it was a repeat of the cycle as a contango cycle. It was ugly, ugly, I mean, just disaster. Okay. And to kind of give you a real world example, imagine they’re paying $40 for the contracts, the contracts go to $30 while they own them, okay, great.
They just lost $10 per contract, that’s a disaster. So then they got to go ahead and sell at $30 then they go ahead and buy the next month at $40. So the fun continues to just lose money lose money it’s a no bueno situation. It’s ugly times ugly. In that is how you get uso to go from 13 bucks to a two buck Chuck.
Okay, that’s how you get it. Okay, that’s how you get to go from 13 to bucks. It was an ugly situation. It was just contango on contango in you know, it’s been a complete disaster for us. So let’s be very, you know, clear about that. You know, a lot of folks on Wall Street have been laughing because you know, a lot of retail investors have gotten this over the past few months and like, haha, look at them, they lost money and you know, I hate man.
I don’t think that’s cool to laugh at anybody for losing money. It was just a really ugly situation. Not a lot of people really understood us. Oh, they thought it was just an investment in the spot price of oil without fully researching and definitely always fully research.
But I don’t think it’s, you know, funny to laugh at people just for not doing the full research but make sure you do the full research. Okay? But what just huge change just happened, there’s a huge massive change that just happened here with uso that is really, really freaking exciting.
Okay. On Monday uscf, the funds administrator said over the next three days, the USO will sell all of its West Texas Intermediate contracts for June delivery in favor of longer term contracts. This is a gigantic, enormous change for us. Okay. Now, first off, in terms of the June contracts, they’re getting out of those completely.
And there’s a lot of speculation on what will happen to the June contracts. Some people believe June contracts will go negative again. And if that’s the case, it’s good that that uso gets out of those June contracts. Now, we’ll have to see what happens.
But a lot of people are some people are talking about this time, those contracts might end up going negative $50, negative $100, you know, huge moves. It’s all speculation, we’ll see what actually happens with those June contracts. But we know storage space for oil is you know, getting pretty dang close to maxing out.
And if you take actual delivery of the oil, which you have to do if you own the contracts at the end, then you have to pay to get the oil stored. And so if you’re paying to get the oil stored, oh my goodness, I mean, you’re paying through the nose for for that space right now.
It’s an ugly, ugly situation. Okay, we know this because I mean, all of us that are shareholders of net have bought into net recently, right? There are oil tanker stock, and they’re making money hand over fist right now, in basically anybody that that is involved in oil storage is making crazy money right now.
And it’s a phenomenal thing. And so if you want to get rid of those contracts, yeah, at the end, you’re going to probably have to pay to get rid of those contracts because whoever’s taking delivery is gonna have to pay through the roof just to store the oil.
It’s absolutely crazy. Okay, now here’s where it gets really exciting. Okay, the funds rough breakdown, talking about uso will now be as follows. Okay, 30% of the money will be in July contracts. So July contracts are trading roughly around 17 $18 right now.
So they’re flipping the June contracts into July contracts. Obviously, you know, the June contracts are much lower than July contracts. So that’s a lot of contango there. But what’s exciting about this is if the economy opens back up, I think when people start getting a little bit excited about what’s going to transpire, and oh my gosh, you know, oil demand is finally coming back to a certain extent, those July contracts could potentially go up a lot.
We’ll see what happens with that, you know, it’s all gonna depend on when these worldwide economies open up, and how strongly do they open or not open, but just the fact that economies could potentially open within next month is massive. Okay, that’s massive for oil.
So 30% of money is going to be in those then 15% of money is going to be in August contracts. Okay, August contracts right now we’re trading around 21 bucks somewhere around there. So once again, that’s incredibly low. I mean, August, August, usually is trading fino usually 50 to $100 I mean, $50 would be really low for August to be trading at that, but usually August can be trading at 6070 8090 $100.
And, you know, this year it’s trading obviously, in the low 20s. Okay, so 15% of money we’ll be putting those August contracts 15% of the money will be put in September contracts. Okay, September right now is trading at 23 $24 once again, a historically insanely low price needless to say.
I mean for September contracts there we’re going to have 15% of the money put in October contracts October is trading at 25 bucks roughly around there another extremely low price needless to say, when it comes to you know where things are trading at their 15% of the money will be put in.
December contracts December contracts right now we’re trading at about 27 and some change and these numbers are going to be very important to remember as the month transpires because if these numbers continue to jump throughout the month that would obviously be a pretty dang good thing for for USL because they would get to obviously make a bunch of money on these these further out contracts is more of a longer term outlook.
Which I really liked this about you. So now I think they’ve changed for the better. Okay, and then 10% of the money is going to be put way out into June 2021 contracts. So way out there. Okay, June 2020 ones are trading right now in the low 30s. Okay, the low 30s.
That’s a year from now it’s hard for me to see oil prices 30 $31 a year from now, everything’s possible. It’s a commodities market. I just don’t foresee that with everything that is going on right now. Okay, let me be very clear. My bet is on oil prices. is going up for the next one to two years.
And I think uso now is in our actual good position to take advantage of this with the fact that they’re buying longer term out contracts, rather than just trying to be in the situation where they’re almost all their money’s in the current month, and then they have to go ahead and flip that in the next month.
That’s a messy situation that’s hard to really capitalize. It’s almost impossible to capitalize on oil going up over time. Okay. The fact is, now they’re in a much better position to capitalize on my bet, which mine I just don’t think oil at the current prices is is is sustainable.
Okay, so before uso was really no good for my situation, it really wasn’t because of contango. And it was just way too short term. Now, you know, things are much better. Okay. In my opinion, $10 to $30 oil is not sustainable, long term. Let me be very clear about that. $10 to $30.
A barrel oil is not sustainable, long term. Okay. The Saudis, the Saudis can produce oil and transport oil for for cheaper than anybody else. But on an actual cost basis, it’s around 10 bucks for their breakeven. Okay, so the Saudis aren’t even making profits at $10.
Nevermind everybody else. I mean, if you’re in the US, if you’re in the States, you need $40. Plus, if you’re in Russia, you need, you know, 20 to $30, roughly around there. If you’re obviously in the UK or anywhere in Europe, you really need 55.
And up I mean, you know, needless to say, this is completely unsustainable to keep oil prices down where they are, okay. Oil currently, obviously, is in a dramatically bad situation, the supply is way out of whack compared to the demand. Why is this?
Well, the producers kept producing oil and have kept producing oil, even though they’ve cut and cut and cut and they’ve just, they’ve just been too far behind the ball when it came to production cuts, because the whole situation just threw a mess into it. Okay, so they lagged big time when it came to cutting supply.
Demand is the worst. It’s been in a long, long time. I mean, like, literally decades, because of the running brona shutting down worldwide economies. And it just put oil into this dramatically bad tailspin that’s going on right now. I mean, you couldn’t possibly really imagine a worse situation for oil prices than right now you really can’t.
Because the fact is, worldwide economies got shut down. And everything in terms of OPEC, they completely lagged is shutting down wells and production. And same things with a lot of the US producers, they’ve just completely lagged in that situation. I think things are going to flip in the back half of this year.
And especially as we go into 2021, I think what’s going to end up happening is we’re not going to have nearly enough supply, demand is going to probably have come back quite a bit, maybe it’s not fully back, but it will have come back a lot.
Meanwhile, a lot of the US producers and shale plays a lot of them are going to go bankrupt, okay, a lot of those are just going to be shut down it just completely because they’re not going to be able to make money, they’re gonna have lost so much money, it’s just gonna not make sense.
So supply from the US side is going to be down any buddy producing out of Europe is probably going to go bankrupt or you know, face a lot of troubles. Let’s put it that way. Okay. And then you have OPEC continue to cut and cut and cut. And I think we’re going to end up getting in a situation 2021 where supply is likely going to be not enough in demand is going to be way higher.
And so that will end up producing a situation where prices continue to climb and climb and climb and climb in my opinion. And obviously, that would be a very good thing for you. So the fact that they’re buying these longer out contracts, and if these longer out contracts continue to go up for them, that would definitely be a very good thing for you.
So in general now the next question is, where will I buy more at and how much money would I put in? Okay, well, how much more would I put in? And you know, where would I buy it? Okay, so here’s what I’m thinking, you know, I always got to think about like, like worst case scenarios whenever you go into a stock or into something like this like a commodity and you also have to have a max amount of money you’re willing to put in and I’ll share that maximum of money.
I’m willing to put into this as well. Okay, so if I go down on uso 5% so you know, basically my position goes down 5% I will buy $5,500 more give my my my initial investment here is right around $11,000 so add another $5,500 more and that’s if it goes down 5% Okay, now if I go down 10% from my original buy/
Which I don’t know if that would really happen but it’s everything’s possible okay? I doubt I bought uso right at the bottom Okay, it’s very rare that I get in on a stock or you know, I rarely buy into funds like this, but it’s very rare that I buy bread at the bottom so it’s very possible it could go down 510 percent okay.
So if it goes down 10% from my original buy, I will buy another $5,500 more which would mean my you know original amount put in with essentially now be 22,000 roughly somewhere around there. Okay. Now if I go down 15% from my original buy, I will buy another $11,000 more okay and this is typically what I do with a stock one buy stock if it goes down more and more, and I love the company more and more, I’ll just buy in heavier generally.
That’s, you know, you could, you know, I can, I’ve documented that many times on the channel, obviously, you know, Tesla was a good example of that, you know, it went from 300. And it was in the two hundreds, and it was down to 180. And I just kept buying, buying buying shares as it went down.
And that’s how I got a cost basis in the public count on tests of I think it’s $227, because I was just buying, buying buying all the way down. Okay. So once again, it goes to my original investment goes down 15%, let’s say I’ll buy another $11,000 worth.
And if, if I was to go down 20% plus from my original buy, I would buy another $11,000 worth. Okay, I would say there’s a very low probability In my opinion, I go down 20% plus on this, it is possible. Okay, it is possible as with all things in the market, I think there’s a very low probability, because I think the oil market, I don’t want to say it’s at a bottom. But Gosh, it’s got to be getting pretty dang close.
Okay, you know, within the next, let’s say, a few weeks, and maybe the next month or so, I think we’ll likely see a bottom so to go down 20% Plus, hey, it’s a possibility. But I highly doubt that would happen, but if it happened, I will put another $11,000 into uso.
Okay, so my maximum amount I’m willing to risk in uso is $44,000, that’s the maximum amount I’m willing to risk out there I talked, you know, then maybe $100,000, I can’t see myself putting that much into, you know, basically a commodity play. This is not my specialty.
But you know, hey, if I see some easy money out there, which I kind of started looking at uso and I’m like, looking at the way they’re going to start doing the fun now. You know, needless to say, I think those contracts are going to become much more valuable, they’re buying over time.
And I think the funds going to be in a much stronger position for the next one to two years. versus if they’d kept doing what they were doing. If they kept doing what they were doing, it was just going to be a mess. And it was probably just going to continue to go down and down and down.
Now I’m looking at this fund and it’s much more attractive, unless the only way it’s not attractive is if you’re in a situation where you don’t believe oil prices will ever bounce back. If you believe oil prices are going to be stuck in the $10 to $30 range for all of eternity.
You know the fair play and you there’s definitely not one you can think about playing but if you’re bullish on oil prices over time and you think you know oil, oil supply and demand then the day and you know I think there’s a demand is going to come back pretty strong over the next year or two for oil products.
Meanwhile supply they’ve just continued to cut it cut it cut it players going bankrupt and I think that’s going to set up for a real interesting price rebound for oil over the next one to two years and I think we’ll do pretty dang good on this one.
It’s no you know, I do I think I’m going to 10x my money or something like that. No, probably not okay, but do I think I have a decent probability of doubling my money if not more than doubling my money over the next you know, one to two years I think I do in this one okay.
And so that that’s the you know, that’s the video hope you guys enjoyed as always make sure you smash the thumbs up button and let me know in the comment section what you think about uso now that they have made those changes to what I would love to hear from you guys.
As always make sure you share this video out educate others about us. So not a lot of people know exactly how uso works. I think it’s just like, you know, investing in the spot price of of what oil does today or something like that. And that’s not how it works. All right. Thank you for watching. Have a great day.