By Lee Lowell, When it comes to the energy sector, this market is the undoubted leader of the pack in terms of making large intraday moves and the effect it has on the broader economy and other markets.
And right now, it’s moving like a wildfire. I’m talking about the oil market, of course.
Back in my August 25 column, I forecast that speculators would drive oil to $80 in the near-term, with $90 probably right behind.
Sure enough, December 2009 Crude Oil futures (the front-month contract right now) have just tagged the $82 per barrel level. What’s more, it came after hitting a recent low of $65.55. Even for the oil market, a two-week, $16.50 non-stop run is an impressive move.
So what’s coming next for this highly influential commodity?
Two Ways to Take Advantage of Oil’s Continued Rise
With the perception that the U.S. economy is finally moving out of the doldrums, all the hedge fund and speculative money that has sat on the sidelines for months is finding a home in the oil market. Depending on which report you read, world demand for oil is expected to pick back up, and this is adding fuel to the fire.
Since hitting its lows in March, you can see the unabated move higher. Oil is trading above all three popular moving average levels, which just adds to the bullish momentum.
Once oil moved above $76 per barrel, it was off to the races. But we should see a touch of consolidation here, as all markets need to take a breather after such a strong move.
After that, we don’t see any reason why oil shouldn’t continue to keep moving higher. The $90 level is next in line and we could even see $100 again by the end of the year.
To play the move, you could do the following…
Buy shares or options of exchange-traded fund (ETF) like United States Oil (NYSE: USO). It tracks the movements of the crude oil market, but allows you to trade it directly from your stock brokerage account.
Go directly to the source – the trading pits of the New York Mercantile Exchange (NYMEX). This is where a majority of the trading volume still takes place and it offers a safe forum for buying and selling futures and futures options contracts. Although you’d need to conduct a trade through a commodity broker, you can access these markets electronically. Stick with limited-risk option strategies.
Four Reasons Why Natural Gas Has Set a Low… and is Ready to Rise
Having hit major new highs in the summer of 2008, it has been a long ride down for natural gas.
Simply put, that’s because natural gas supplies are reaching maximum capacity. With the Energy Administration Information’s announcement last week that supplies reached a record 3.734 trillion cubic feet, there’s not much room left to hold all the supplies, which are reaching full U.S. storage capacity.
Naturally, traders have jumped on this huge supply as a “no-brainer” shorting opportunity. But as we’ve seen over the last few weeks, natural gas prices have only gone up. This leads to a few conclusions:
Shorting the natural gas market was a great strategy for a year, but it’s finally reached an end.
No matter how bad the fundamentals may be, all the news finally gets factored into prices.
Winter is approaching and colder weather could draw down supplies.
Those who were too late to short to the market are being forced to buy back their positions.
At this point, I believe this market has finally put in a solid bottom and should see higher moves going forward. It looks like the technical side of the market is the driving force right now and with the price holding above key moving averages, we should continue to see it move upward.
