This could be the most important column I write all year – and I wanted to write it when the ‘free view’ period was done and only those who had paid their hard earned money had access. I’m about to give you what I think is the best investment I see right now, one that strikes me as having the best risk/reward and available to any subscriber, given just a little work.
You need to be long contracts in the far back of the crude oil curve, with a holding period of at least 18 months.
Yes, it’s a long-term investment and yes, it has margin responsibilities that other equities and ETF’s don’t. But it also takes advantage of a consistent and important mispricing I see in the oil market that delivers a most tasty risk/reward opportunity.
First, buying contracts in the futures market a year and a half or more from delivery takes fantastic advantage of the current shape of the crude curve – a steep backwardation. That means that the pricing of crude contracts as you move further out into the future cost less and less. How much less? Well, with prompt crude for October of 2013 trading at $108 or so, prices for March of 2015 are pricing at slightly under $90 and for December of 2015 at $87. That’s a $20 discount for crude prices less than two years from now.
I consider that $20 to be a true buffer that you can rely upon, helping to greatly increase the…