Commodity Trading Trends: Crude Oil In Focus (USO, XOM, CVX, ERY, ERX)
Jared Cummans: The recent performance from crude oil has caught a number of investors’ eyes, as the fossil fuel has surged in the past week to break through the $90/barrel level. In fact, since opening around $86 per barrel on October 20th, crude jumped roughly 8.1% as of market close Tuesday. Yesterday, however, markets had other plans for oil, with a major supply increase putting pressure on the asset class. WTI futures took a hit of 2.5%. With crude exhibiting a nice upward trend over the majority of the last week, its dip creates an interesting trading opportunity for those who feel that yesterday’s losses were only a temporary bump in the road [see also Crude Oil Guide: Brent Vs. WTI, What’s The Difference?].
There have been a number of factors converging to help push crude to highs not seen for weeks, starting with the death of Libyan dictator Moammar Gadhafi. While a specific timeline is unknown, the Libyan leader being out of power means that the country may be able to get its vital crude production up and running again, a positive sign for crude oil and its traders. Another encouraging sign came from Europe, as their debt talks sparked investor optimism in recent days, creating significant tailwinds for the fossil fuel. When markets surge and economies are strong it typically gives oil a boost as it points to more consumption and demand for the vital energy source [see also Seven Reasons To Hate Gold As An Investment].
Ways To Play
For investors looking to make a play, crude’s recent volatile habits and yesterday’s poor performance makes it a prime candidate for today’s trading. Perhaps the most direct method of making a play today will come from the December contract for WTI offered on the NYMEX. But not everyone is savvy to futures markets as they can be quite complex and often lead to traders losing money if they fully do not understand them. Investors can also utilize the United States Oil Fund (NYSE:USO), an ETF that tracks the very futures offered on the NYMEX. The fund has about $1.5 billion in assets and trades an average of 13.3 million times each day. Finally, for those looking for a more indirect play, stocks like ExxonMobil (NYSE:XOM) or Chevron (NYSE:CVX) also make for interesting opportunities [see also Analyzing Five High Yielding Oil & Gas Pipeline Stocks].
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