Thursday 24 March 2022

Bought some Oil (OOO)

I keeping with the war profiteering theme, I decided to buy into an oil ETF on my margin lending account. Of course oil would have been a great investment back in 2020 when it bottomed out at $25 a barrel, and with the current price around $120 being close to the previous peak it certainly doesn't seem cheap. But, given the likely impact of the Russian invasion of Ukraine on Russian oil sales and then on their oil production, it seems like oil could remain in an uptrend for quite a while yet.

Apparently the exit of western companies from Russia will leave a large gap in the expertise required to continue to operate their eastern oil fields that sell product to China. And in the west, sanctions and war impact on tanker access to Russian ports will prevent production that normally flows to Europe being sold elsewhere. In the worst case production may have to be scaled down to the extent that it has impacts on the pipeline and oil field infrastructure in Siberia, which would take years to reverse.

Anyhow, there seems more potential for global oil supplies to be restricted further rather than getting back to 'normal' in the short term, so the oil price could continue to rise. This may be a short term trend rather than the longer term impact on food production and prices, but this is probably quite a speculative play.

I bought about $10,000 worth of OOO.AX using some of my remaining margin loan capacity. The BetaShares Crude Oil Index ETF-Currency Hedged (synthetic) OOO.AX enables investors to gain exposure to the performance of the crude oil included in the S S&P GSCI Crude Oil Index Excess Return without the need to invest in the futures market or take physical delivery of the commodities.

Overall my Commsec margin loan portfolio is now quite highly geared and risky (with fairly low maximum LVRs applying to the three investments):

Investment                      Units        Price        Value            LVR

CFS Geared Global Share Fund    38,898       $1.5759      $61,299.88       35%

BETASHARES GLB AGRICULTURE ETF   1,200       $8.40        $10,080.00       60%

BETASHARES CRUDE OIL INDEX ETF   1,000       $9.95        $ 9,950.00       35%

The value of these holdings is likely to be very volatile, so I will have to keep an eye out and be prepared to close out the positions if things start to go pear-shaped. Another risk is that Commsec could suddenly change the LVR on one of more of these risky investments, which could trigger a margin call even if the unit price doesn't drop too much.

Subscribe to Enough Wealth. Copyright 2006-2022

No comments: