Oil Goes Boom!

Markets are beginning to notice that the price of oil is headed higher. We've discussed this for some time. It seems to me this must happen as world economies start to recover. More economic activity means higher demand for oil or at least it does according to how I learned the business. Here is what 24/7 said about yesterday about oil:

"Oil will post its largest one-month rise since 1999 in May. That does not seem possible given that it rocketed up to $147 in the middle of last year. The news is a sign that crude prices are on a march that may not end this month." Link: http://247wallst.com/2009/05/29/a-powerful-rise-in-oil-even-by-2008-standards/#more-36036.

Refinery usage is also up according to the US Department of Energy. It also reported yesterday that crude stockpiles & gasoline stockpiles declined in the past week. Oil inventories have now declined for three straight reports. We've all probably noticed that the price of gasoline has risen as well.

All of this is likely bullish for a higher price in oil commodities (which investors can own through the ETF USO) and is also bullish for higher share prices in oil services and exploration companies.

We've included a chart of USO above. Note these positives. 1. Oil has taken out its downward sloping trendline from last summer. 2. It has broken through resistance, the top end of its trading range which has been in place since December. 3. Money flow probability indicates that the price of oil per the USO should at some point be attracted to and test the $40 level. That $40 level nearly equates with a $75 dollar price in crude. That is a level that OPEC has argued is an ideal for oil prices. ^

^Link: http://247wallst.com/2009/05/28/oil-inventories-plummet-regardless-of-opec-production-targets-uso/#more-35909

USO is currently oversold. It could now flop around and consolidate its gains. Note as well I'm not arguing that oil is going anywhere near its old highs anytime soon. But I do think that the trade to oil and energy prices is now to the upside. I am an investor in these sectors and the commodity itself through the USO ETF for appropriate accounts and would like to buy these on weakness going forward.

*Long ETFs related to oil exploration companies and oil services companies. Long certain oil and oil services companies in legacy accounts. Long USO for risk appropriate accounts. Long certain leveraged energy ETFs for risk appropriate accounts.

Finally please consult your own investment advisor or do some homework on your own if you are not a client of our firm. This is simply to let you know what we are doing for clients and should in no circumstances be seen as a recommendation for you to follow our lead.