Despite Oil's Slippery Slope, Consider USO

Oil is now at $38 a barrel. It has been trading the $38-$42 range for the last month or so. One can complain about the Dow falling 50% over 12 months, but how about Oil falling 75% in 6 months? It fooled a good many who were betting it would keep going up and maybe rising to $200. It certainly fooled T. Boone Pickens, who many consider to be the best oil trader around. He had predicted oil would end the year at $150.

Now, 6 months after an all time high, oil sits at under $40 despite the recent events in the Middle-East. Gas prices at the pump hit a low not seen in over 8 years last month. At some point though, the markets will get sane again, and the smoke will clear. At that point, I expect oil to move up to a more normal $60-70 range. Things have already started to even out with prices at the pump now moving higher from their December lows. So with the understanding that there may be some more short-term downside to oil prices, I recommend the start of a (USO) long position at current levels.

Comments

[Roger Knights:]

Oil's price movement this year hasn't made sense from a market perspective, so I'd be wary of thinking it's put in its bottom just yet. Even though it's crazy, it could go $10 lower, if there is some crazy factor moving its price.

Jan 13 08:03 AM

[BigArm25:]

Yea it's this crazy law called supply and demand. How do you manage a 5-6 dollar (12%) cost of roll each month? Oil price has to go up $50 dollars per bbls to cover the cost of roll? Shouldn't you wait until the market shows reduced cost of carry?

BigArm25


On Jan 13 08:03 AM Roger Knights wrote:

> Oil's price movement this year hasn't made sense from a market perspective,
> so I'd be wary of thinking it's put in its bottom just yet. Even
> though it's crazy, it could go $10 lower, if there is some crazy
> factor moving its price.

Jan 13 08:11 AM

[godcanhelp:]

in this market everthing will overdone.just like oil went up,let's how low it kwill go.i've put 5% my money in ,if dow another 8% I will put another 15% of my money.

Jan 13 08:30 AM

[AndrewBaker:]

Dollar up, gold down in a near bankrupt economy and printing presses going hell for leather printing more dollars! Reduced production, Middle East worries, crude sloshing around the oceans in tankers, yet oil still down! The only thing I can rely on right now are the charts. I'll pair long and short ETF/N and follow the trend. That's better than listening to and reading the wisdom of pundits who know no more than anyone what actually will happen.

Jan 13 09:10 AM

[jgonion:]

Reader Beware -

With the futures markets for oil trading in contango, investments in futures-based ETP's are penalized for the degradation of the forward-month contract price, on top of any up/down movements in oil prices.

Until the oil futures start trading in backwardation, investors can get exposure to oil through UOY/DOY ETN's which will not suffer the contango-tax that comes from rolling futures contracts in this market.

One caution, the volumes are pretty-low, but since oil is a very liquid market (no pun intended), these funds track surprisingly well for having such low trading volume.

Jan 13 06:54 PM

[DHH:]

I don't get this contango and rolling thing. If I want to go long on oil at the curren price, and my time horizon is 3 years, what should I invest in if not USO? Thanks!

Jan 14 12:05 AM

[DHH:]

I don't get this contango and rolling thing. If I want to go long on oil at the curren price, and my time horizon is 3 years, what should I invest in if not USO? Thanks!

Jan 14 12:05 AM