This is the third article I have written since March imploring people to buy oil, and now gas. Time is running out.
This is the first time I have ever repeated a subject in one of my articles, but this is such a great opportunity it deserves one more shot for those who may have missed it.
Oil has gone from about $38 per barrel to around $58 per barrel in the last two months. The recommended plays from the last two articles have also run.
The two ETF’s I have recommended have performed exactly as advertised. Both, DXO and DIG have consistently returned at least twice the increase in the price of crude oil. Within days of the first recommendation you could have purchased DXO for as little as $2.71 per share, it’s now about $3.46.
The current price of crude, $58, and the expected price target of $75 per barrel would suggest another 60% gain is possible for both in the near term. At this point the move in the price of oil is almost unavoidable, for many reasons.
In just the past two weeks, two different OPEC spokesmen have stated that oil has to go to at least $75 per barrel, and production will either be cut, or would not increase when the world economy to expands, which amounts to a cut. This is reason enough for the excess oil reserves we have to dry up in a hurry.
With information like this on the street it is conceivable that if any really significant positive information about the health of our economy, or any other key world player’s economy, were to be released we could see a run well beyond our near term price of $75.
The U.S. economy is showing signs of improving. The most recent jobs numbers indicate we are on the right track for a healthy recovery.
The stock market’s recent move is indicative of it reacting to news six months into the future. Six months is about when most believe the economy should be moving into positive territory and the increases we have seen in oil prices are paralleling the upward moves in the market.
We are moving into the summer driving season and increased gasoline consumption. This too adds to the demands on our reserves and in recent years has driven the cost of gas up.
China’s economy is starting to rev up. 85% of their stimulus package was committed to infrastructure as compared to 5% of ours. This has had a more immediate affect on their numbers and it is showing in the rate of recovery.
As the economies of the world start to generate bigger and bigger numbers, the demand for energy will explode again. It’s doubtful we will see $146 per barrel again soon, but it will happen again.
The more immediate opportunity is in the next nine months. The price target of $75 is a forgone conclusion. How much higher it runs is a function not so much of consumption but of anticipated demand in response to how quickly the world economies recover.
So here again are the recommendations, with a new one.
DXO is a pure crude play that will give you two times the return of any increase in the price of crude.
DIG is a crude and natural gas play that also gives you two times the return of the price of crude and natural gas. It isn’t as clean a play as DXO but its return has outpaced DXO a little in the past few weeks.
The new play is a gasoline play, UGA. This is a pure play on the price of gasoline. It pays one to one for any price move on unleaded gasoline delivered to New York harbor traded on the New York Mercantile Exchange.
Gas in my area has moved from $1.99 to $2.29 in a week.
This is a move you must make now or get used to watching from the side lines. As the price moves into the sixties in the next few months, the total return on this play will have dropped to the point that it will have become a sucker play with the uninformed buying at the top.
This will not be a straight shot; you will have a few more opportunities on pull backs to average in and get your overall cost down. But make no mistake; oil is going back to the $75 to $100 range, and maybe higher. You have had plenty of opportunities to take advantage of it.
Good luck!
Steve
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There is always another trade.
I disaqree with McDonald’s assessment of the recent jobs number leading to a “healthy” recovery. It was a terrible report with revisions downward for past months of 70,000 and included one-off census government jobs of +66,000. Secondly, he states we need to get into oil now, but then he says we can buy it over time on dips. Buy it now (when it is overbought) and we have plenty of time to buy it later on dips is an internal inconsistency. This ranks just behind his (CAT) article, another poorly thought-out piece. Does anybody over there proof-read his stuff?
I have been watching these double ETF’s since McDonald first recommended them and have considered investing, but just today I’ve received warnings from two different sources about leveraged ETF’s and the “microstructure effect” giving them a downward bias over time. One writer warned that only fast traders should consider leveraged ETF’s, and the other recommended that if you’re going to play them, go short the double inverse ETFs (i.e. short DUG instead of long DIG) to take advantage of the downward bias.
Would be interested to hear Mr. McDonald’s perspective on this..
The way I see it, is that reasonably priced oil, is as essential as reasonably priced food. If people cannot afford food, we head for the tank, and if people cannot afford fuel for their homes and cars, we also head for the tank.
IMO, $147.00 oil, brought the economy down just as fast as the financial sector did, and frankly, the Government (we) simply CANNOT afford to let oil go off the charts again!
If people cannot afford to drive to work, or use their boats and toys, nobody wants to buy their house, or their toys, because those in that market will not be able to afford them either, and the dominos begin to fall, one by one.
We MUST put people back to work developing alternative energy, be it electric cars, solar power, wind, nuclear, - whatever. Buying foreign oil from people who despise us, and making them fabulously wealthy, while our economys “tank”, just dosen’t cut it anymore.
You have been exactly right about Dig….anyway you slice it, an individual could have made money on this one….either with straight purchase(I got in at 23) or with covered calls, and puts on the downside for a hedge aspect….very, very good play. My exit strategy was completed on Friday….and you can see what Dig has done since I got in earlier this month.
im direct to a oil refinery