Many of the financial talking heads are now saying that oil will go to $75.00 a barrel before peaking out. Isn’t it funny how these so called experts come up with these levels? What are they using to say these statements. The truth is that they are probably hoping it comes back to that level so their investments can work out or recover from the 2016 decline earlier this year. If anyone looks at a chart of crude oil they could clearly see oil has major resistance around the $50 to $55.00 dollar area. Today, crude oil is trading around $51.00 a barrel.
There are many factors that affect the price of crude oil. Some of these factors include oil production output, weather, geopolitical events, and the U.S. Dollar. Out of all of these factors the strength and weakness in the U.S. Dollar seems to be most important. Please understand, most of the oil in the world is traded in U.S. Dollars. So if the U.S. Dollar is strong against most other currencies in the world the oil price will likely decline. That was certainly the primary reason for the decline in crude throughout the past two years.
There are many ways to trade oil despite using oil futures these days. ETF’s and ETN’s such as the United States Oil Fund LP (ETF)(NYSEARCA:USO), iPath S&P GSCI Crude Oil Total Return(NYSEARCA:OIL), and the ProShares Ultra DJ-UBS Crude Oil(NYSEARCA:UCO) are just a few different vehicles that can be used to trade oil on the long side. Some short side trading equities for crude include the ProShares UltraShort Bloomberg Crude Oil ETF(NYSEARCA:SCO), and the DB Crude Oil Double Short ETN (NYSEARCA:DTO).
Full disclosure: I currently own SCO shares.