Oil did rise significantly in 2009 after a dramatic drop from 145$ (in July 2008) to 42$ at the start of this year. There is still so much speculation about oil, how much of it is left, if alternative energy sources will replace oil and just how high it can go!
The most problematic part of this for me is that the correlation between oil (and most other commodities) and the US dollar. Since it is very unclear where the US dollar is headed, it makes it much more difficult to predict commodity movements. However, oil still seems like a very solid bet for 2010 for many reasons including:
-Institutional investors continue to increase funds allocated to oil and other commodities as a hedge against inflation but also to be able to deliver what have been very solid returns in the commodity sector in recent years.
-Stimulus money spent all over the world has generally been very bullish of oil both because of the way it is spent (generally in oil/energy needy projects) but also because of its general impact on the world economy.
-Oil demand is expected to move higher after suffering what turned out to be its biggest percentage loss since 1982 this year. Amazing isn’t it that oil prices moved so high despite diminishing demand? But don’t expect demand to stay low for much longer. There is so much growth in emerging markets that peak oil continues to be a much discussed subject.
There is of course risk for price downturns but we have to consider the risks to be much smaller than the potential profits made from oil investing at this point. It is very unlikely that oil will go back down under 50$ but an increase over 100$ seems very possible/likely.
With that being said, here are a few suggestions for crude oil investors:
OIH: Oil services holders trust
OIL:: Tracks Goldman Sachs Oil Total return index
XOP: S&P Oil & Gas exploration & Production ETF
US singles names
XOM: Exxon Mobile (largest oil company)
HOU: 2x daily movement of Crude Oil
CLO:: Crude oil companiessuch as Suncor, Ivanhoe Energy, Imperial Oil
ZEO: Companies involved in the oil & gas index