Oil Angles

Finance at First Light
Good morning! Let’s explore ways to profit off high oil prices:


  • Benefit From Even Higher Oil Prices | If oil country unrest worsens, the price of oil will rise further and so will these investments.
  • Benefit From Interest in Alternative Energy | Expensive oil always reinvigorates the alternative energy sector, and these investments will move higher if that happens again.
  • Benefit When Everybody’s Wrong | If oil country unrest tapers off quickly and this oil price spike is shorter lived than most analysts expect, these investments will appreciate in the reset.



1. Benefit From Even Higher Oil Prices

The time to bet on higher oil prices was the end of November, but here we are over $105 per barrel and you think the run-up has farther to go. If so, you’re not alone. Fortune reported yesterday that a “surge of speculative money into the oil futures pits shows that big financial players are expecting the price of WTI crude to surge well above the recent $105 … big trading firms now have nearly twice as many long contracts open as they did in 2008, when oil spiked to $147.”

Jeff Rubin, author of Why Your World is About to Get a Whole Lot Smaller, a book about the need to reengineer our lives for energy scarcity, thinks “it will be difficult to keep prices from moving even higher as investors start piling on the oil bandwagon, particularly when they see most of Saudi Arabia’s much touted four million a barrel a day excess capacity is largely of the fictional variety while, at the same time, noticing how little effect monetary tightening is having on restraining China’s exploding fuel demand.”

If speculators and Rubin are right, you’ll do well owning ProShares Ultra Crude (UCO) or PowerShares DB Oil (DBO). Since their November lows, they’re up a respective 45 and 29 percent. Since their lows just last month, they’re up a respective 38 and 15 percent.


2. Benefit From Interest in Alternative Energy

People forget about the dangers of oil when it’s cheap, but remember in a hurry when it’s expensive. High oil prices beget high fuel prices, which send people scurrying for more efficient vehicles and alternative energy investments.

If that happens again, you’ll be glad to own Toyota (TM), maker of the Prius, or Market Vectors Global Alternative Energy (GEX). Since their November lows, they’re up a respective 28 and 7 percent — but each is cheaper now than it was two weeks ago.


3. Benefit When Everybody’s Wrong

You may have noticed the investment media positively bursting with high-priced-oil stories, and find yourself wondering if a contrary view of the future could pay off. The most surprising turn of events would be a quick resolution to unrest in oil country, no damage to top-producing Saudi Arabia, and falling oil prices.

Providing you with confidence in this view: OPEC raising output to “cool soaring prices and allay fears of a supply crunch in the west,” dollar bears becoming a marauding horde that’s likely to bottom out the currency fairly soon and thereby create a downward pressure on oil prices when the dollar begins strengthening again, and Canada’s oil sands now supplying more oil to the US than does Saudi Arabia — illustrating that short-term trouble in MENA need not mean long-term trouble for oil.

Should the price of oil top out sooner than widespread warnings indicate, you’d do well buying PowerShares DB Crude Double Short (DTO) or PowerShares DB Crude Short (SZO) into a further rise in oil prices. Since their November highs, they’re down a respective 38 and 20 percent.

Careful out there,
Jason Kelly
For actionable investment ideas based on this and other information, consider subscribing to The Kelly Letter. It’s just $5.48 a month.

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