How to Play a Possible Obama Oil Price Bump
It's only been a week since the Obama Administration announced it, along with many other nations, was releasing a total of 60 million barrels of crude oil, including 30 million alone from the US strategic oil reserves.
The official reasoning was that the US reserves were at capacity and this amount could make up for some of the shortfall from Libya's decline in production. The more likely reason is this was the best idea to kickstart the world economy, chasing off speculators long enough to let oil prices decline and the economy get going again.
Will it work? Maybe. Whether you think it's a one-time gambit that won't work or a cunning strategy that will, there are money-making opportunities for you out there. Here are a few ideas.
If you think that Oil Will Go Higher
- Would a rise in oil lead to even more profits for oil companies? As long as the price doesn't prickle up peak oil concerns, people will continue paying just about anything to fuel their cars, trucks, and vans. Exxon (NYSE: XOM) and ConocoPhillips (NYSE: COP) are two that seem to land on their feet. British Petroleum (NYSE: BP), assuming they haven't killed off another water ecosystem by then, could be another play.
- I keep pushing investors to consider ETFs because they offer a broad-set approach to a sector. One individual company might have quirks or individual problems that keep it from benefiting from otherwise positive news. Of course, they can also have quirks that make them boost up higher than expected, if they are uniquely positioned to gain double or triple benefits off news events. Either way, ETFs can be a smart way to go if you're looking to play global or national news, as opposed to strict fundamentals or strict technicals. For oil, the one to look at is the US Oil Fund (NYSE: USO).
- If this gambit doesn't work, it might appear that higher oil prices are here to stay. If so, more drilling could be the next logical step, even for a Democratic president and Senate. If so, drilling stocks like (NYSE: RIG) could definitely stand to benefit. Of course, if the administration switches strategies and pivots to a significant solar or other alternative strategy, oil drillers might be kind of screwed.
If you think that Oil Will Stay Where it is or Go Lower
- Other than dead and deported terrorists, the best news an airline can get is lower oil prices. I mean, if you think $4 a gallon sucks, imagine filling up a jet with jet fuel. That's the kind of sticker shock that make you wish your granddaddy had left you his train business rather than an airline. In any case, if you think oil is down and staying down, take a look at American Airlines (NYSE: AMR) or Delta (NYSE: DAL).
- Let's do some simple math. A restarted economy plus lower oil prices equals what? If you guessed increased new car sales, you're right! What did you win? The right to consider buying General Motors (NYSE: GM) or Ford (NYSE: F).
- Oooh, more ETF flavoring! This time, an oil short fund. Want to squeeze the speculators? ProShares UltraShort Oil & Gas (NYSE: DUG) could let you make money off sliding oil prices. Of course, if they rise, you're kind of doomed, so plan accordingly.
- Can we get through a trading idea piece involving oil without mentioning the dollar? Nope! Oil goes down, the dollar goes up. It's not guaranteed, but it's a pretty good bet most of the time. You can try your hand at forex (assuming you're OK with losing every asset you own, if you don't know what you're doing) or you can buy a currency ETF, like (NYSE: UUP). My guess is you prefer living in a home to living under a highway bridge, so maybe stick with UUP.
- Last, but not least, sinking oil prices would be great news for the market as a whole. You can get in on a market ETF with the S&P 500 ETF (NYSE: SPY), which covers, basically, the entire market. If the market goes up, it goes up.
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