The oil price has recently hit the headlines, andmedia have reported repeatedly of an “oil market crash“. When talking about the oil price we always refer to the price of a futures contract with the next delivery date (front-month future) of the respective oil brand (mostly Brent or WTI). The “negative oil price“ hence solely referred to the expiring May future of the US oil brand WTI. At that time, the subsequent June contract still quoted above USD 20. Such an extreme price difference between two ensuing contracts is truly a rarity and was due to the fact that, for the lack of storage capacities, traders had to sell the expiring May future before its expiration date in order to avoid having to take a physical oil delivery.
The same applies to “open-end“ oil certificates where the futures contract which is about to expire is rolled over into the contract with the next expiration date. Thus, the expiring future to which the certificate relates at that point in time is sold in exchange for purchasing a future with a later expiration date. Consequently, the underlying changes in the course of the rollover. If the future with the next expiration date is more expensive than the one approaching expiration (“contango“ situation), the certificate’s subscription ratio is reduced accordingly to offset the price difference. The rollover involves no price gain (or loss) of the certificate as the difference between two futures contracts does not mirror an economic performance but has already been priced in by the market. Investors neither benefit nor suffer a loss from the price difference between two futures contracts.
Currently, the oil futures curve is particularly steep – the futures contract with the ensuing expiration date is far more expensive than the one that is about to expire. Such a situation brings about a particularly pronounced rollover effect in open-end certificates. To bypass these rollover effects, Raiffeisen Centrobank issues new fixed-term Participation Certificates on Brent Crude Oil. These products relate to one particular futures contract and are redeemed prior to the future’s expiration date. The certificate’s term ends and it is not rolled over into a new futures contract. The certificate’s performance is more comprehensible and transparent without these rollover effects: Investors participate 1:1 in the performance of the underlying future. Please note that against the backdrop of the current contango situation, futures contracts with a longer remaining term (i.e. physical delivery lying further in the future) are traded at higher prices than contracts which are closer to expiration. Hence, the new Participation Certificates are quoted at a higher price than the futures contract with the next expiration date foreseeing delivery in July. As the certificates quote in EUR whereas the underlying quotes in USD, foreign currency fluctuations may impact the certificate’s value.
Please find below an overview of our new fixed-term Participation Certificates on Brent Crude oil:
|ISIN||WKN||Underlying||Multiplier||Final Valuation Date||Currency|
|AT0000A2GJR8||RC0YVU||Brent Crude Oil 09/2020 Future||1.0||16.07.2020||EUR|
|AT0000A2GJS6||RC0YVV||Brent Crude Oil 12/2020 Future||1.0||16.10.2020||EUR|
|AT0000A2GJT4||RC0YVW||Brent Crude Oil 03/2021 Future||1.0||15.01.2021||EUR|
The final valuation date is two weeks prior to the underlying futures contract’s expiration. This reduces the risk of extreme market fluctuations which often occur in illiquid trading shortly before a futures contract expires.
For investors with a higher risk appetite, Raiffeisen Centrobank issues new open-end Turbo Certificates with various leverage effects on the underlying Brent Crude oil. These certificates relate to the Brent futures contract with the next expiration date which, prior to its expiration, is rolled over into the ensuing contract. The rollover effects as described above apply. In Turbo Certificates, the rollover is not displayed in the subscription ratio but by adjusting the strike and the knock-out barrier. Please note that Turbo Certificate mirror the underlying’s performance disproportionately which substantially increase the risk to incur a loss. As the certificates quote in EUR whereas the underlying quotes in USD, foreign currency fluctuations may impact the certificate’s value.
Please find below an overview of our new Turbo Long Certificates on Brent Crude oil:
|AT0000A2GJ97||RC0YVC||Brent Crude Oil Future||0.1||13||15||EUR|
|AT0000A2GJA4||RC0YVD||Brent Crude Oil Future||0.1||15||17||EUR|
|AT0000A2GJB2||RC0YVE||Brent Crude Oil Future||0.1||17||19||EUR|
|AT0000A2GJC0||RC0YVF||Brent Crude Oil Future||0.1||19||21||EUR|
|AT0000A2GJD8||RC0YVG||Brent Crude Oil Future||0.1||21||23||EUR|
|AT0000A2GJE6||RC0YVH||Brent Crude Oil Future||0.1||23||25||EUR|
|AT0000A2GJF3||RC0YVJ||Brent Crude Oil Future||0.1||25||27||EUR|
Our new issues provide investors with attractive opportunities to invest into the underlying Brent Crude oil. We are expanding our product portfolio in the weeks and months to come and would like to invite you to visit our website for updates.
For further information kindly see guide on oil investments.
For any additional information you may require do not hesitate to contact us: +43151520484
The Structured Products Team of Raiffeisen Centrobank
This is advertising that does not constitute investment advice, an offer, a recommendation or an invitation to submit an offer. Comprehensive information about the financial instrument and its opportunities and risks - see approved (basis) prospectus (including all supplements), published under www.rcb.at/en/securitiesprospectus. Additional information also in the Key Information Document and under "Customer Information and Regulatory Issues" at www.rcb.at/customerinformation. The approval of the prospectus should not be construed as endorsement of this financial instrument by the authority (FMA). You are about to purchase a product that is not simple and difficult to understand. We recommend that you read the prospectus before making an investment decision. The investor bears the credit risk of Raiffeisen Centrobank AG (RCB) when purchasing the financial instrument. The certificate is subject to specific rules that may already be disadvantageous in case of a probable default of RCB (for example, suspension of interest payments) - see www.rcb.at/en/basag.