forex fire

Anyone who’s gotten involved in the inevitable daisy chains that are part of the online international commodity “trading” business has learned a new meaning of the term “dead end.”

The fact is (and this is learned from real oil traders who know from experience) that most of these “deals” are just fake, plain and simple.

Thanks to the Internet, these days some phony-baloney oil brokers even have their own websites and call themselves petroleum suppliers or petroleum companies even though they may not have completed a single real oil trade transaction in their lives. Why do they keep doing it?

I honestly don’t know. The sad thing is these traders’ persistence could be put to good use if they ever took the time to actually learn about the business. And don’t think it’s only the unschooled who fall victim to these daisy chains. Many lawyers, MBAs and educated men and women who should know better are frequently sucked in too.

When real petroleum companies deal with real refiners in foreign countries, the standard procedure is that the seller makes a firm offer to the buyer - subject to whatever he needs done - and the buyer then takes a look at the offer and says either we’ve got a deal or we don’t.

Simple. It’s just like any other trade transaction in that regard. Too many buzzwords and too many qualifiers usually mean you should stay clear. And contacts who are actively seeking banking information before any discussion of product are usually non-players.

What about discounts? Real traders know there’s no discount on orders whether it’s a big deal or a small deal but the “play traders” believe that if the deal is bigger, there should be a bigger discount. This is another example of not knowing the industry.

Instead of looking for suppliers of huge amounts of oil in its various forms, the real buyers know that no single supplier can come up with one million barrels a month (an amount frequently tossed around) because the refining capability just isn’t there.

What about someone fronting for a rich Saudi sheik?

Fat chance, say the real traders. In the case of Saudi Arabia, there are only two legitimate organizations that sell oil on behalf of the country or an oil consortium. Someone who says he’s selling on behalf of a Saudi sheik is just, well, full of sheik!

And if they start talking about millions of barrels per month it’s almost certainly not real unless they’re talking about crude oil.

Remember, a broker’s entire job is to help a petroleum company’s trading department find or sell oil and related products so that he will receive a commission when the deal comes together. Will you get paid? That’s always an issue for export intermediaries but it can be especially tricky in the oil business.

The fact is that most oil companies — and especially the big ones — have traders in their marketing departments who operate honestly and fulfill obligations to brokers. But there are some independent and smaller companies who treat brokers shabbily and their reputations are widely known - another reason to get smart on the oil business before you dive in.

Surprisingly, you will probably find that many of the bigger oil trading companies will not only accept your services but may also provide advice and assistance.

So what’s the bottom line?

Like I said before, it ain’t easy. And you’ve got to know what you’re doing. The fact is, petroleum marketing is a dog-eat-dog business and if you’re a broker, you’d better have the resilience and perseverance to work through the baloney and outright deceit which seems to attach itself to petroleum trading.

Frankly, unless you have contacts in or familiarity with the petroleum industry, I recommend you stay with small- and mid-sized product manufacturers who are not exporting their products. It may not be as exotic as trading in petroleum, but it works - and you can make some real money. If you insist on trading in the volatile petroleum industry, try to find someone who will mentor you on the ins and outs. This is probably the best way to make sure you don’t get “burned” by oil.

Dennis Hessler is the publisher of The Computer User’s Guide to Running Your Own Exporting Company and numerous other books, video tapes, software packages and The International Trade Connection newsletter which is designed to show entrepreneurs new to exporting how to get involved in the booming global market.

Learn more about international trade at his website, http://www.spyglasspoint.com You can also download a free sample copy of The International Trade Connection at the site. If you have questions about any of his products or international trade in general, e-mail Dennis at Dennis@spyglasspoint.com. Spyglass Point Productions, P.O. Box 13141, Pensacola, FL 32591 U.S.A.

The launch of the US Oil Fund (ticker: USO) gave investors an easy way to invest in the hottest commodity of the day: oil. Still reeling from the post-Katrina boom that has kept gas prices over $2.00 a gallon, investors bought over five million shares in the ETF’s first day.

The concept is an easy sell: it’s a fund that invests in oil contracts with the purpose of mirroring the value of West Texas Intermediate (WTI) light, sweet crude oil at a ratio of one barrel contract per share. One share, one barrel.

Easy, right?

Riiiiiiiight…

The Well-Known Risks of Commodities

Everyone knows about the risks of investing in commodities, but it is worth repeating the main points.

Commodities prices fluctuate quickly and widely. An announcement from any OPEC country could send oil prices up or down 10% within minutes. With every word spoken by the prime minister of Iran oil pushes upward.

Oil investments are also subject to operational risks: environmental hazards such as oil spills, leaks, fires and discharges of toxic chemicals.

This is not rational long-term investing. This is short-term, profit-taking trading, and it should be treated as such.

Commodities have long been considered a hedge against market fluctuations, not a primary holding. Now they are suddenly an investment strategy. Any commodity — oil, gold, pork bellies — should be considered a hedge against a bond or equity market downturn.

Like gold and other commodities, oil futures have enjoyed a long bull market in the post 9-11 world, but commodities and hard assets tend toward modest gains over the long term. And they are all subject to sudden, harsh corrections.

Specific Risks of the Oil ETF (USOF)

Though any commodity investment involves certain general risks, the US OIL Fund (USOF) ETF has specific risks that make it particularly unstable.

1. Price Risk - This is the risk that the NAV of the fund will not equal the price of WTI light, sweet crude, as the fund intends. The fund’s prospectus outlines three reasons why this could happen:
2. Market Risk - The trading price per share of the ETF may not correlate with the value of the NAV, which is calculated by dividing the total value of the fund’s assets by the number of shares. The ETF, then, could trade at a premium (more than the underlying assets are worth) or a discount (less than the value of the underlying assets).
3. Management Risk - The NAV may not match the value of the benchmark oil contract. The underlying assets of the fund, then, could stray from the value of the contracts the fund trades.
4. Futures Arbitrage Risk - The price of the benchmark does not closely correlate with the price of WTI light, sweet crude. In this case, futures contracts may differ in price from the underlying asset (barrels).Any one of these risks would be enough to make USOF a questionable investment, but there’s more…
5. Strategy Risk - Rather than profit from speculative short-term futures trading, the USOF tries to track the price of the underlying assets (oil), using futures contracts. This is all to be carried out by the General Partner (manager), Victoria Bay Asset Management, described in the prospectus as “lean staffed,” which “relies heavily on key personnel to manage trading.” As the prospectus notes, “there is no assurance that the General Partner will successfully implement this investment strategy.” Like stocks, futures contracts can be over- or undervalued with respect to their underlying assets. Further, the fund can be manipulated by short-term trading tactics (i.e. short selling). This fund’s reliance on a “lean-staffed” manager which does not actively manage the fund’s assets, but rather attempts to track an index price, does not bode well for the fund.

Legal Risks

Aside from the organizational risks, the USOF has two outstanding legal claims to contend with.

1. NYMEX - The New York Mercantile Exchange (NYMEX) is the exchange through which WTI light, sweet crude is traded. As the publisher of the price of that asset, NYMEX is challenging USOF’s use of the price as a benchmark. NYMEX is seeking a licensing agreement with the fund, or threatening legal action to prevent the fund from using it as a benchmark. According to the prospectus, “USOF is unable to determine what the outcome from this matter will be…This may adversely affect USOF’s ability to achieve its investment objective.”
2. Goldman Sachs - One of the world’s largest investment banks, Goldman Sachs, has two patents pending which may be infringed upon by the fund’s methodology. Both patents define a means for creating a pooled fund that trades futures contracts and issues the equity interest of the fund to investors through publicly traded shares. Should the patents be granted, USOF may be held liable for patent infringement, if it were to “operate as currently contemplated after the patents were issued.” If either of these patants is granted, the fund may be liable for royalties, which would come from the fund’s assets.

These are complicated matters for attorneys in the specialized areas of Intellectual Property and Finance, and this author is unqualified to make a determination as to the merits of the claims made. As investors, however, we are all qualified to say, “nope, too much risk for me.” Pure oil contracts are less risky than this fund. Should USOF be held liable for either of these claims, any damages or royalties will be taken directly from the fund’s investors, which could negatively affect performance by 4-5 basis points (0.4%-0.5% annually, which can negate any positive performance or exacerbate the losses of a hedging investment).

Conflicts of Interest

The fund makes no bones about it: a whole section of its prospectus is entitled, “The General Partner Has Conflicts of Interest.” The management of this fund has other investment interests that may be of more importance (to them) than this fund. “For example,” it states, “a conflict may arise because the General Partner and its principal and affiliates may trade for themselves.”

Essentially, this is an open invitation for the management to prioritize their own holdings (and holdings they have a vested interest in) over the USOF holdings.

Better Options Abound

Usually there are better options around, no matter what you’re looking at. But when it comes to USOF, there are few worse options.

The management has not proven itself as a consistent performer. The underlying commodity is near an all-time high. The strategy is subject to pending legal decisions.

There are better options in mutual funds that specialize in commodities producers. And even these funds should not comprise more than 5% of an individual’s portfolio.

If you still feel the need to invest in the “pure oil play” that’s getting all the press these days, please read The Prospectus before investing.

B. Patrick Regan is a freelance writer and a staff writer at StocksAndMutualFunds.com. He had no vested interest in any securities discussed in this article at the time of publication.

When looking for the next rising fine art photography stars today, one may need to look in untraditional places. In the past, the large galleries and institutions, like MOMA in New York, set the standards. Now, young fine art photographers are taking charge and promoting themselves and their colleagues.

The first place to start your quest for fresh fine art photography is the world of blogs. Some of the blogs are curated and feature different photographers daily, like iheartphotograph dot blogspot dot com, curated by Laurel Ptek. She features both a photographer of the day and longer features that highlight an artist with three or four pieces and minimal text. A majority of these photographers have their own personal websites and blogs which can be accessed by clicking on the pictures from I Heart Photograph. The photographers rely heavily on word of mouth, found as referrals from other similar blogs and sites, so once you get started on one blog, you are sure to find others. A good blog to start on is notifbutwhen dot com/2 by Chicagoan Brian Ulrich.

Next, head off to the organizations. Many fine art photography lovers have gotten together to keep the art they love alive, by giving young artists recognition. One of the best examples is Humble Arts at humbleartsfoundation dot com. They not only give others the limelight with monthly group exhibitions, they have expanded to sell work and give twice yearly grants.

Now, head to the world of publishing on demand. For most photographers, the dream is to eventually have work shown as a monograph book. The process is long and often involves raising funds from collectors. Today, many are taking advantage of the rise of on demand publishers, such as Lulu and Blurb. With some time and effort, one can make a book and offer it for sale to the public for as little as $19.99 depending on the size and number of pages in the book. Blurb has even started to court photographer, knowing they are making up a large portion of their sales, by starting a contest for the best fine art photography book which includes a cash price of $25,000 for the artists to make more work.

Now, if you are hooked on photography and want to decorate your home with your new love, there are many places to get limited edition prints for a low cost. The most extensive collection of low price prints is at Blindspot dot com in conjunction with their long running seasonal magazine.

The rise of the internet and self promotion can only help the world of fine art photography find a more diverse group of artists where geography plays little to no role and emerging photographers can be found at the click of a button.

Lucy Bushman is an accomplished niche website developer and author.
To learn more about fine art photography, please visit Photography Hobbyist for current articles and discussions.