Oil, the much discussed and much hyped resource has been getting absolutely hammered in recent months as fears of the global recession have been getting louder and louder. Oil is now down to levels not seen in a long time that are having important geopolitical impacts around the world as oil rich nations that got used to the very important revenues from oil are now seeing those almost come down to a stop.
In fact, apart from a few oil rich nations such as Saudia Arabia, many other oil projects are not even reaching the breakeven point. The most obvious point is the sands in Canada that require oil above 50$ on average just to break even. Basically, the fact is that even without the OPEC cuts that were announced this week for oil, a lot of other production costs are being announced around the world.
Can Oil still go down? Absolutely! Many of the analysts that there were predicting 200$ oil earlier this year now have forecasts of 25$! And you could maybe wait for that point to jump in and go long oil (there are many ways to play it, here is a good article about ways to do so) but I would argue that this might be a good time to get involved. I don’t think I’d jump right in Monday morning, simply because there is so much momentum right now for oil to continue its slide. But I would stand ready to make a play as I don’t think we will have oil sitting at 30-35$ in 2-3 years.
So yes, this would be a long term play and I would pre-determine an exit point because remember how you will see oil at 200$ as soon as it reaches 50$…don’t get fooled, determine your trade right now and show discipline. Or maybe event setting a time limit, such as getting into a trade and deciding to get out of the trade one year from now or maybe a little more (at least wait until the world recovery is within sight and starts to be reflected in the markets).
I say this because oil might go a little down from your entry point, and you must not panic, let’s not fool ourselves, oil is NOT going to 0$:)
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