Best Investment for a Long War

While $USO and $BNO (ETFs which track the near term price of oil) have surged, I believe the opportunity is in the longer term price of oil which remains underpriced. **The Backwardation Gap** The market is currently in record-breaking backwardation. While May WTI trades near $110, August WTI is sitting at $80. This steep $30 drop indicates that the market expects a rapid return to normalcy, despite the extreme near term supply crunch. **Why $USL?** Front-Month ($USO/$BNO): Highly reactive to headlines, interventions via emergency reserve releases; much of the supply shock and war risk premium is already priced in. 12-Month Ladder ($USL): Invests in a ladder of the next 12 months of futures. It is currently priced on the assumption that the Strait reopens shortly. **The Thesis** I won’t go too deep on geopolitical analysis here, but the math is simple: **If you believe the closure of the Strait of Hormuz will be a longer-term event, the back months are severely undervalued.** $USL allows you to capture the correction as the market realizes "normalcy" isn't coming back anytime soon, and future dated oil needs to catch up to the spot price.