Question

1. (Alternative Assets & StockTrak) The EIA, which releases oil inventory data every Wednesday, attempts to explain what happened in a link I posted to Canvas. Which of the following statements is most likely FALSE:

1. Near contract maturity, oil futures contracts can involve physical delivery or can be rolled over to other contracts
2. US consumption of oil and petroleum products has declined sharply due to COVID-19
3. Cushing, Oklahoma, is the primary location in the US where physical delivery of oil takes place
4. The EIA indicates levels are 30% below capacity, so there is plenty of uncommitted storage available
5. Oil futures markets are currently in steep contango

2. (Alternative Assets & StockTrak) The EIA missed something. Read the Caveat Emptor link I posted to Canvas about USO! Be careful what you are buying, especially when it comes to exotic ETFs, and especially when it comes real life investing (i.e. not StockTrak). Which of the following statements is most likely FALSE:

1. USO’s IPS does not allow for physical delivery of oil, thus the fund needs to roll contracts forward every month
2. USO had accumulated 20% of all May 2020 futures contracts on oil prior to the price collapse on April 20th
3. The popularity of USO with retail investors was partially to blame for the market rout in oil prices on April 20^th
4. USO has switched to using a mixed maturity of futures contracts, thus increasing transparency, and ensuring the fund’s price won’t collapse again
5. USO tracks the spot price of oil, so if the spot price of oil goes up 45%, USO goes up 45%

Answer 1

1. Contango is position when the spot prices are lower than that of future prices so there is always a future market premium in case of contango

Oil futures reflected huge discount to future price in relation with the spot price recently when oil went negative so it was an example of backwardation hence statement (E) is false.

Rest of the given statement are true as consumption has shrinked and it can also involve physical delivery.

So the correct answer would be of statement (E).