Commodity Trading Trends: Crude Oil In Focus

The past few weeks have seen a fair amount of volatility in what is arguably the world’s most popular commodity. Crude oil had been on a tear, surging from $75/barrel to a peak of $102/barrel last week, marking an increase of over 35% in less than two months. But as Euro zone debt woes weighted down on the global economic outlook, crude took a major hit, losing over 6% in just a matter of days. But this result shouldn’t come as a major surprise given that crude features a relatively high correlation to equities, with a 0.75 relation to the S&P 500 over the trailing year [see also Crude Oil On Fire: Examining The Commodity's Rise].

Crude has been subjected to a rough year given all of the unrest in the Middle East. With a number of uprisings in countries like Tunisia, Egypt, and Libya, several major crude producing wells and pumps have been offline, putting pressure on the fossil fuel. Crude saw its price spike to around $115/barrel before bottoming out with markets amid August’s hefty volatility. More recently, oil saw a nice boost from news that Enbridge, a Canadian oil sands company, was purchasing a 50% steak in a major U.S. pipeline, and reversing the flow to export more oil. “The surprise announcement means that Canadian oil-sands production would be delivered to the Gulf Coast market, competing more directly with Brent-based barrels, wrote Tim Evans, an oil analyst with Citi Futures Perspective, in a note” writes Claudia Assis. With oil exhibiting significant volatility, now may be a good time to make a play [see also Three Things Wall Street Journal Didn’t Tell You About Commodities].

Ways To Play

For investors who have a strong opinion on where crude is headed, or for traders looking to make a quick return, there are a wealth of options available. Perhaps the most direct method comes from the January crude oil futures contract offered on the NYMEX. But not everyone is savvy to futures markets as they can be quite complex and difficult to understand. Investors can also utilize the United States Oil Fund (USO), an ETF that tracks the very futures contracts offered on the NYMEX. The fund has about $1.5 billion in assets and trades an average of 13.3 million times each day. Finally, for those looking for a more indirect play, stocks like ExxonMobil (XOM) or Chevron (CVX) also make for interesting opportunities [see also 25 Ways To Invest In Natural Gas].

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Disclosure: No positions at time of writing.

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