Looks Like It's Time to Buy Oil

Includes: COP, OIL, USO, XOM
by: Mark Riddix

Crude oil is down over $100 per barrel from its highs of this past summer. Oil traded at around $150 per barrel and gas prices rose to over $4 a gallon. Oil currently trades at around $47 a barrel and gas prices are well under $2 dollars a gallon. The precipitous decline in the price of oil can be attributed to the decline in oil speculators and falling worldwide demand due to the slowing economy.

As oil prices continue to drop this may represent an attractive buying opportunity in energy related equities. Oil should bottom at around $40 a barrel. The fundamentals are in place however for oil to rise over the long term. The current cheap oil environment hurts the development of alternative energy projects. The oil market should rebound at the start of an economic recovery or any significant production cuts from OPEC. Demand for crude oil will return with economic stability and increasing the money supply should produce an inflationary environment that leads to a rise in commodity prices.

One of the easiest ways to play an expected rise in oil is to buy the United States Oil ETF (NYSEARCA:USO). USO is an exchange traded fund that directly tracks the price of crude oil. The USO is currently trading at a price of $38.50 which is very close to its all time low.

Another option is the iPath S&P Crude Oil Total Return Index (NYSEARCA:OIL) which tracks crude oil futures contracts. OIL is currently trading near its all time low at $27.52.

You could always purchase one of the major integrated oil companies like Exxon (NYSE:XOM) or Conoco Phillips (NYSE:COP). Exxon currently trades at $77 a share and Conoco Phillips trades around $50. These stocks still have room to drop further. Exxon looks like a buy closer to $60 and Concoco in the $40's.

Lately television pundits and analysts have stated that oil may go as low as $25 per barrel. No one knows the exact bottom for the oil market. But if oil does hit $25 a barrel; oil should rebound off that level rather quickly. Many of the same people touting oil at $25 were saying that oil at $200 a barrel was just around the corner.

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