Which way oil?

US oil stockpiles compared to spot price of West Texs Intermedate oil, May 2011 to May 2012

US oil stockpiles compared to spot price of West Texs Intermedate oil, May 2011 to May 2012

With oil trading down to five month lows, the press has been making a lot of noise lately about the situation but, as usual, seems to be missing the bigger picture. Lets take a look: the price of West Texas Intermediate (WTIC, red, in the chart above) reached a short term high of 107.52 on March 2nd, 2012. Since then the price of oil has dropped some 11% even as stockpiles increased almost 4%.

How to trade it? Well, ETFs (Exchange Traded Funds) is an attractive way to trade most commodities. If you believe oil might increase in value United States Oil, USO, seeks to track the price of of West Texas Intermediate. If you think the price of oil will continue to decline ProShares UltraShort DJ-UBS Crude Oil, SCO, moves inversely – that is, as the price of oil decreases this ETF will increase in value.

Of course keep in mind that prices always swing back and forth as supply changes – just three months ago spot prices hit a nine month high when Iran stopped supply oil to Europe. Now Iran, unable to sell it’s oil due to US economic sanctions, is apparently stockpiling oil on tankers at sea. What will happen to prices once Iranian oil reenters the global supply?

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