What’s the deal with oil?
A couple of days ago, when the price of crude dipped to a 6-month low of around $69, something hit me. It wasn’t making sense. News of British Petroleum’s (BP) deepwater well explosion in the Gulf of Mexico was about a month old. 5,000 gallons were spewing into the ocean every day. I saw a picture on CNBC.com that showed oil reach the Louisiana shores. And then the president came out and said his administration was going to suspend Arctic drilling until 2011.
Meanwhile, demand wasn’t slowing. And the US$ has had a ridiculous run-up against most of the world’s currencies. Since crude is traded in US$, it meant that oil was getting more expensive for foreigners (I think). I know this is contrarian to some people, but all that news just led me to believe that there would be some sort of a pull-back.
Rather than buy USO, the United States Oil ETF, I opted for UCO, the Proshares Ultra Crude Oil ETF. I got in at $8.95. Currently, at $9.77, I’m up a decent 8.24%. I don’t really have a sell strategy for this one. My gut feeling is that it will continue to go up for a while. But what I’ll probably do is try and time the rebound. The Dow is at 10178, and the S&P is 1092. At best, I think the Dow has another 200 points and the S&P 50 points of upside before the market continues its decline.
I’ll most likely get rid of UCO before then. But at least that gives me somewhat of a framework to work with.
Off to lunch!
