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USCF's Love Sees Oil Glut Likely To Persist in Near Term(Audio) · Bloomberg Intelligence

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  Speaker 1: This is a Bloomberg Business Flash from Bloomberg World headquarters.
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  Speaker 1: I'm Charlie Pallat. Just getting word of a two billion
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  Speaker 1: hundred index down five at three, a drop there of
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  Speaker 1: four tenths of one percent. The ten year of three
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  Speaker 1: Gold higher little changed up point one percent to thirty pounce,
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  Speaker 1: and crude oil now at three a barrel to drop
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  Speaker 1: there of seven tenths of one percent. I'm Charlie Pellett.
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  Speaker 1: That's a Bloomberg Business flash. You're listening to Taking Stock
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  Speaker 1: with bim Box and Dabline Hays on Bloomberg Radio. Freeport mcmaran,
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  Speaker 1: this is the largest publicly traded copper miner, says it
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  Speaker 1: no longer believes it has to sell assets in order
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  Speaker 1: to deal with the aftermath of a commodity's meltdown. Instead,
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  Speaker 1: the company says it's going to sell new shares in
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  Speaker 1: order to help pay down debt. Well, if you're gonna
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  Speaker 1: have to pay down debt, that means you've got some
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  Speaker 1: cash flow. What do you do with that money? And
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  Speaker 1: how do you get it? John Love is the president
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  Speaker 1: the chief executive of u s CF United States Commodity
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  Speaker 1: Funds assets under management five billion dollars, based in Redondo Beach, California.
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  Speaker 1: But John joins us in the studio. Thanks for coming in,
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  Speaker 1: Thanks for having me. I mentioned Freeport mcmaran really just
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  Speaker 1: as a kind of poster child for a company that
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  Speaker 1: has both mining assets as well as energy at sense,
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  Speaker 1: what's your outlook for those particular industry groups. Well, energy
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  Speaker 1: is one of our primary focus is We actually just
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  Speaker 1: celebrated the tenure anniversary of our oil fund USO UH
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  Speaker 1: today rang the bell in the New York stock exchange,
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  Speaker 1: so it tends to be our focus. Uh energy. I
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  Speaker 1: think as we've seen in the last couple of weeks, UH,
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  Speaker 1: some of the enthusiasm that that we had coming into
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  Speaker 1: summer has dissipated. I think there's some pressure on the market.
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  Speaker 1: The supply has not fallen off as much as people expected,
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  Speaker 1: and UH, gasoline inventories are high, oil inventories remain high.
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  Speaker 1: Production has come down, but there's definitely some concern that
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  Speaker 1: there's still so much pressure due to that inventory overhang. UM,
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  Speaker 1: we think we think there'll be some pressure going into
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  Speaker 1: the second half of the year. So John just gives
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  Speaker 1: a little bit perspective on you and your company founded
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  Speaker 1: ten years ago an oil ef You know, they were around,
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  Speaker 1: but contmpared to that hyperbolic explosion of growth we've seen
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  Speaker 1: the v t s. You're still a bit of a
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  Speaker 1: pioneer there. What got you into the energy sector? What
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  Speaker 1: got you to start the CTF. Sure, well, when we
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  Speaker 1: first started looking into the space, there were actually no
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  Speaker 1: commodity e t s yet. Out et s were um
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  Speaker 1: still they were, like you said, about ten years old
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  Speaker 1: as we started looking, but nothing in commodity. So we
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  Speaker 1: looked we considered a basket, we considered some kind of
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  Speaker 1: macro fund and just as we explored options, that looked
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  Speaker 1: like oil was the best way to to to start.
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  Speaker 1: And indeed as we went through the process, UH it
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  Speaker 1: paid off and we launched April two thousand six and
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  Speaker 1: um USO took off very rapidly. So I think it
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  Speaker 1: was just the demand in the market, the interest from
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  Speaker 1: participants and and they definitely showed up when we came
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  Speaker 1: to market. What does us so this fun? What does
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  Speaker 1: USO actually own in order to mimic the price of oil?
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  Speaker 1: USO owns futures contracts were in the front month future
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  Speaker 1: until two weeks before expiration, and then we roll over
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  Speaker 1: the second month, so we're perpetually always in the oil
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  Speaker 1: future and just hold a continuous position going forward. And
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  Speaker 1: the significant so that is prior to USO, and if
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  Speaker 1: an investor wanted to do that, they had to open
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  Speaker 1: their own futures account, established margin, roll up position, do
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  Speaker 1: all those things. And UM, we kind of we're kind
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  Speaker 1: of the people who put it on the screen, I guess,
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  Speaker 1: so to speak, is UH for for your average, average
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  Speaker 1: every day investor. So, John, what do you tell people
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  Speaker 1: who say you know, commodities oil, that's not really an
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  Speaker 1: asset class. Uh. You know, I would disagree with that.
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  Speaker 1: I think that if you look just at oil alone,
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  Speaker 1: then yes, oil is a single commodity, gold is a
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  Speaker 1: single commodity. But if you look at commodities in general,
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  Speaker 1: at which we think people should, uh, then I think
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  Speaker 1: I would consider it an asset class. But I agree
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  Speaker 1: with you that oil on its own, it's it's something
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  Speaker 1: that you should look like tactically, just as you would
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  Speaker 1: look at a single stock. You want to uh know
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  Speaker 1: the market and know what you're doing and be tactical
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  Speaker 1: with it. But I think that you can look at
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  Speaker 1: broad commodities as an asset class. As the strategy involves
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  Speaker 1: buying futures and then rolling to the next month two
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  Speaker 1: weeks prior to expiration. Everyone else must know that at
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  Speaker 1: two weeks prior to expiration you're getting out. What has
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  Speaker 1: that done to the volatility of USO, It actually really
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  Speaker 1: hasn't affected it. Um. The the Goldman role takes place
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  Speaker 1: roughly about the same time, just a little ahead of us,
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  Speaker 1: and there are a number of other players in the market,
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  Speaker 1: the entire market. Anybody who's in the front month has
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  Speaker 1: to close their positions before expiration. So while people know
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  Speaker 1: we're doing it, we are one player in the market,
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  Speaker 1: and we have not seen We've done studies just to
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  Speaker 1: see if if we are affecting role price before, price after,
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  Speaker 1: and we have not found, um anything anything at all.
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  Speaker 1: So USO seems to be a pretty solid aggregated position.
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  Speaker 1: So how did you get interested, particularly in oil and commodities?
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  Speaker 1: And we're based on you know, put putting this et
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  Speaker 1: F together and and overseeing this fund of this company.
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  Speaker 1: Where's well heading from here? Because you know, once you
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  Speaker 1: talked about fifty bucks of barrel, the bulls are saying
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  Speaker 1: that's it. Maybe you know, roar, but you can at
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  Speaker 1: least get to sixty or seventy. Kind a bit of
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  Speaker 1: a pullback last couple of days of saying, you know,
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  Speaker 1: you just can't get out from under that weight of
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  Speaker 1: a glut of global supply. Yeah, you're exactly right, that
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  Speaker 1: weight that glut is is likely to persist for for
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  Speaker 1: a while. Um, I think this pullback is completely warranted. Uh,
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  Speaker 1: going in, you know, coming from spring into summer. As
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  Speaker 1: I said, I think that there was reason for optimism.
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  Speaker 1: I think there still is longer term, but right now
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  Speaker 1: we have the overhang. We have um gasoline demand that
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  Speaker 1: was strong in the first half of the year and
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  Speaker 1: actually was strong summertime, just wasn't as strong as it
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  Speaker 1: needed to be and as it was expected to be.
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  Speaker 1: So that has put some weight on the market as well.
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  Speaker 1: So I do think, like I said, pressure towards the
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  Speaker 1: end of the year, but as we get into seventeen
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  Speaker 1: and definitely eighteen, I do think, without any unexpected events,
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  Speaker 1: supply balances and we start to see that that inventory
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  Speaker 1: come down eventually, just quickly. Is there any way to
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  Speaker 1: describe easily the discrepancy between the returns of USO and
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  Speaker 1: if you just plot the valuations of crude oil as
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  Speaker 1: a commodity, Absolutely, especially if you were on your on
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  Speaker 1: your Bloomberg terminal and you you just look at the
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  Speaker 1: price of oil itself. You use the front month future contract.
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  Speaker 1: That is that the prices are correct, the prices are
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  Speaker 1: an index of what's there every day, but that return
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  Speaker 1: is not achievable, it's hypothetical. So the prices are right,
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  Speaker 1: the returns are wrong. You have to adjust the price
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  Speaker 1: series back. You have to back adjust it for the role,
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  Speaker 1: and in that case, USO would roughly match what the
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  Speaker 1: future does and has done. Ah, the endless utility of
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  Speaker 1: the Bloomberg. John Love, thanks so much for joining as
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  Speaker 1: President CEO of U s c F. The United States
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  Speaker 1: come out of the funds, ringing the bell and stock
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  Speaker 1: exchange today, Happy birth your mom, she was there too.
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  Speaker 1: Thank you very much, John Love, thanks so much. This
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