How to Profit From the Oil Run
05/27/08 Categories: Stock Investing and
Investments
With oil prices up over 40% this year
and talk of oil continuing its upward trend, there is a way for you
to profit from it. Some fundamental knowledge about this spike in
oil prices will help you understand why and how to trade on
this.
U.S. Crude Oil hit $135.00 last week and is expected to continue its run. Last year investors predicted that oil would go above $80 a barrel in 2007. It did; it went way beyond that.
What does expensive oil mean to Americans? In a New York Times article Arjun N. Murti, an oil sector specialist for Goldman Sachs, states that there will be a "super spike" in oil prices with oil at $200 a barrel. That $200 translates into a $6 gallon of gas. The increase in oil demand will continue through 2011, Murti says.
$6 for a gallon of gas. How can you make money on that? Well $6 is 50% more revenue than the already high price of $4 a gallon. That is, 50% more revenue for those selling and producing gasoline. Oil companies tend to do well when oil prices are high, and inversely oil consuming companies tend to do worse when oil prices are high. So what do you do?
The way to structure this trade is much like a long/short fund:
Take a look and do a little research on how this plays out if you don't make this trade. Some airlines are expected to fail or file for bankruptcy, and oil companies will probably post record profits as they did in 2007.
Oil's run-up in prices may be hurting you at the pumps, but you may be thankful that you profited from the price of oil and its effects on the economy. Also, check out the previous article 3 Stocks That Can Make You Rich for good mid-to-long-term plays. Much time and research has gone into these stock investment tips and investing ideas.
Browse Travel by Destination at Luxury Link
U.S. Crude Oil hit $135.00 last week and is expected to continue its run. Last year investors predicted that oil would go above $80 a barrel in 2007. It did; it went way beyond that.
What does expensive oil mean to Americans? In a New York Times article Arjun N. Murti, an oil sector specialist for Goldman Sachs, states that there will be a "super spike" in oil prices with oil at $200 a barrel. That $200 translates into a $6 gallon of gas. The increase in oil demand will continue through 2011, Murti says.
$6 for a gallon of gas. How can you make money on that? Well $6 is 50% more revenue than the already high price of $4 a gallon. That is, 50% more revenue for those selling and producing gasoline. Oil companies tend to do well when oil prices are high, and inversely oil consuming companies tend to do worse when oil prices are high. So what do you do?
The way to structure this trade is much like a long/short fund:
- Buy/Long stocks that profit from oil the most- Exxon Mobil (XOM), PetroBras (PBR)-for a foreign play, and Chevron (CVX), as examples.
- Short sell stocks that are negatively impacted by high oil prices- Airlines (look for negative news on particular companies really struggling) , Consumer Discretionary (retail stores, apparel companies, furniture companies) because people have less discretionary income. *Example Airlines: Northwest Airlines (NWA), United Airlines (LCC), American Airlines (AMR)
Take a look and do a little research on how this plays out if you don't make this trade. Some airlines are expected to fail or file for bankruptcy, and oil companies will probably post record profits as they did in 2007.
Oil's run-up in prices may be hurting you at the pumps, but you may be thankful that you profited from the price of oil and its effects on the economy. Also, check out the previous article 3 Stocks That Can Make You Rich for good mid-to-long-term plays. Much time and research has gone into these stock investment tips and investing ideas.
Browse Travel by Destination at Luxury Link
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