Oil Market Analysis: Oil Bulls Have Control…

| February 24, 2012 | 0 Comments

Much like stocks, commodities are giving investors a reason to celebrate this year.  Thanks to a falling US Dollar, hard assets are racking up substantial 2012 gains.

Since January 17th, the dollar index has fallen just over 3%…

That may not seem like much, but this relatively small dollar drop is spurring specific commodities to double-digit returns.  Gold, silver, copper, palladium, and platinum are all up at least 10% year-to-date.

But as impressive as those gains are, it’s the advance of another essential commodity that’s making headlines.

I’m talking about oil…

The lifeblood of global commerce is surging.  In fact, just in the past two weeks, oil’s gone from $96 to $108… a 12% jump.

Oil’s making a strong upside move in February.  What’s more, the recent jump has pushed crude well over $103 a barrel… a key technical resistance level.  And that’s an important step forward for oil market bulls.

Why?

For months, whenever oil rose to $103, sellers overtook the market and drove prices right back down.  But now that $103 is in the rearview mirror, oil’s free to rise.

How much higher could it go?

That’s a great question…

Unlike the recent advances in metals, crude’s rise isn’t due to the drop in the dollar.  Geopolitical factors are playing the starring role in oil’s recent run towards multi-year highs.

Speaking of multi-year highs…

The red line at the top of the chart is the multi-year high of $114 set in April 2011.  Maybe you remember, last year’s Arab uprising in Libya and Egypt sent oil soaring to uncomfortably high prices.

And unfortunately, whether or not crude reaches those highs depends on yet another Middle East dictator.

That’s right, Iranian President Mahmoud Ahmadinejad and his country are the prime reason for oil’s recent upswing.

As I’m sure you’re aware, the highly publicized stand off over Iran’s nuclear program is reaching the boiling point.  Recently applied sanctions meant to force Iran back to the bargaining table aren’t having the desired effect.

If anything, the recent oil and banking embargo are having the exact opposite effect.  Iran seems emboldened by coordinated US and European efforts to stop their nuclear program.

And that leads us to the heart of the matter…

The real question on every oil investors’ mind right now is Israel.

The Jewish state is growing increasingly impatient with Iran, and understandably so.  The recently applied economic sanctions must force a resolution to the standoff soon.  Otherwise, Israel may have no choice but to launch an aerial attack on Iran’s nuclear facilities.

You don’t have to be an expert in commodities to figure out what an Iranian attack would do to the price of oil.  Let’s just say the red line at $114 would be a distant memory.

Should you try to catch further gains in the oil market?

There are plenty of crude oil based ETFs that track the price of oil… USO, USL, and OIL to name a few.  Buying any one of these could send your portfolio soaring if the unthinkable actually happens in the Middle East.

But I wouldn’t recommend it…

Chasing the oil market at this point is a fool’s errand.  Like I said earlier, the price of oil now depends on a few crazies in Iran.  You could just as easily end up with heavy losses as spectacular gains.

Unless you bought at much lower levels (like subscribers to my Commodity ETF Alert, who bought at the green $80 line last summer), I would steer clear of the oil trade.

Here’s a better idea…

The newly released Market Vectors Unconventional Oil and Gas ETF (FRAK) focuses on the booming US unconventional oil industry.  FRAK focuses on companies helping US oil production grow for the first time in decades.

Even if everything works out peacefully in the Middle East (which I hope is the case), the stocks held in FRAK still have an exceptionally bright future.

But if the worst comes to pass, FRAK may help you get some of the big-time investment gains you’re looking for.

Either way, FRAK looks like a solid bet…

Tags: , ,

Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

Leave a Reply

Your email address will not be published.