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Oil play

December 12, 2006
tags: , ,

I just traded emails with Jane talking about UNT. I thought I should do a post on oil and oil stocks.
The simple way to look at how Crude oil is doing is USO. It’s an ETF that tracks it directly, though I don’t know exactly where the actual dollar value of it comes from, as it’s not a very obvious relationship to the actual price of Crude oil.
(Click chart to see it larger)

For a more direct look at Crude you can use this Gallery View of the Continuous Crude Contracts at Stockcharts.com. Prophet.net also has a good page for looking at futures.
Anyway, looking at the daily and weekly charts, we can see that the downward movement has subsided, though it’s not quite taken off to the upside just yet.
As we noted in our recent meeting, our two oil stocks BHP and UNT have been decidedly down for the past 6 months or so. But they’re trying to make a come back.
UNT is certainly in a short term uptrend, though it is not facing the longer term downtrending resistance line. As there is a good amount of “overhead supply” supply from over the last year, barring a drastic move in oil, I don’t know if we should expect this chart to revisit the highs without some further consolidation. It is up 20% in just over two months. 48.75 should provide support below us.

BHI is very similar, though it has broken its longer term downtrend and with above average volume. There are still some issues of overhead supply, but the most obvious issue would be the 75 level which looks to be likely resistance.

It’s worth considering where the strength is, though, in oil stocks. Doing a comparison of the three industry groups, the Oil Integrated stocks are showing relative strength over the last 6 months.

This relative strength is also reflected in the latest number on the big chart.
Look at the $OIX oil index versus the $OSX oil services and it’ll be pretty clear.
So do a bit of drilling down in the oil integrated group for something to watch. Strangely, that’s the one group of the three that we don’t have represented on our list.
PBR has potential with support in the 95/94 area. XOM looks to be bouncing off 75 support today.

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One Comment leave one →
  1. Anonymous permalink
    December 13, 2006 7:37 pm

    For anyone interested, USO is not formed like the other commodity ETF’s… for instance GLD is the Gold ETF formed as a trust that actually holds the physical gold. The shares of GLD trade at 1/10th the price of gold. Since GLD holds physical gold its price moves with gold.

    USO is formed as a Limited Partnership and does not just hold physical oil. This is why the price is not directly in line with that of oil. They use different products in an attempt to reflect the price of oil but it is not the same as holding physical oil and therefore carries more risk that someone will mess up down the line with their strategy. Not that it will happen but it could. USO could end up outperforming or underperformig the price of oil. There are also fees involved. But, it can still be used to check on the movement of oil.

    Here is a description of the United States Oil Fund, LP.

    The investment seeks to reflect the performance, less expenses, of the spot price of West Texas Intermediate (WTI) light, sweet crude oil. The fund will invest in futures contracts for WTI light, sweet crude oil, other types of crude oil, heating oil, gasoline, natural gas and other petroleum based-fuels that are traded on exchanges. It may also invest in other oil interests such as cash-settled options on oil futures contracts, forward contracts for oil, and OTC transactions that are based on the price of oil.

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