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Oil: Near a Bottom?

 

By Scott Freeze and Evan Zacharias

Given the recent turmoil in both the global markets as well as the massive oil leak in the gulf, the price of oil has sharply declined.  Currently, the July light sweet crude is trading at $73.18 per barrel.   However, there is a strong chance that the price of oil will rebound upwards, somewhere in the range of $90 by the end of the summer.  Some ETFs and ETNs to watch that track light sweet crude are: The United States Oil Fund (USO), PowerShares DB Oil (DBO), (NYSEARCA:OIL) iPath (S&P GSCI Crude Oil Total Return ETN), United States Brent Oil (BNO) and the United States 12 month Oil (USL). Given the recent BP mishap, the government will be more closely regulating oil rigs and their drilling operations, thus reducing the drilling efficiency, in turn reducing the supply, and therefore increasing the price of oil.  Furthermore, the price of oil has also dropped given the recent drop in the price of the Euro(FXE, URR), putting their money into both dollars(UUP) and gold (GLD, SGOL, PHYS, IAU) alike, inflating the price of both.  Investors are looking for the Euro to gain strength around $1.20 before they start buying Euro’s again, and as the price of the dollar decreases, the price of oil will increase.  The current slowdown in Europe and Asia while expected to continue, will probably not get much worse.  Therefore, the demand of oil should stay in a range of flat to a slight increase.  We still feel that OIH is looking at significant volatility given the recent downturn, and continued pressure.    In addition to a possible reduction of supply, there will also be more a possible increase in demand, given that people travel more over the summer time months and will be increasing their usage of gas.  Lastly, natural gas (GAZ, UNG, UNL) could also see an increase in price over the summer given that as government regulation increases, drilling oil will become more expensive to produce.



Disclosure: No Positions

Disclosure: No positions
Stocks: UNL, UNG, OIL, USO, DBO, BNO, USL, FXE, URR, UUP, GLD, SGOL, PHYS, OIH, GAZ