No. 3 - Trading Oil's Impact
How do you trade oil’s impact, from $30 to $100 a barrel?
Oil has been unquestionably the most important macro-factor for the markets for the last half-decade. From Saudi Arabia to Wal-Mart (WMT), oil prices affect everyone. A warm winter can send heating oil prices tumbling, but an event in the Middle East can send crude skyrocketing. What’s the winning play in such a volatile space?
We all know what $50 - $70 oil brings because we’ve lived it, Eric says. With $30 oil, gas was cheap (about $1.25 per gallon on average), but oil that cheap only comes when there is bad economic news worldwide, and then the only trade is cash, he says. If oil goes to $100, it would be because of a major geopolitical event. It would mean gas prices would soar to $4 or even $5, but it would also be an opportunity to go long Chevron (CVX) and other refiners, and gold.
The primary indicator if you’re trading oil’s impact is the price at the pump, Jeff says. When gas prices are higher year-over-year, it will negatively impact retailers.
But with oil, as well as with many things, the market’s perception of the implication can often be a bigger factor than the implication itself. When people see crude going higher, they will sell transports first and ask questions later, Guy says. Whether that’s wise or not, you need to know to stay out of the way when it happens.
Eric agrees with Jeff that the best leading indication for the price of crude oil is gasoline. There’s been a higher demand for gas and thus higher year-over-year prices for some time, and consumers seem to have shrugged off higher gas prices, but after a while they will say, “enough is enough.”
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On APR 6, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders:
Bolling Owns (DIS), Gold, Silver
Strazzini Owns (VZ), (YHOO)