The Energy Dept. reported a greater-than-expected decline in crude inventories, Thursday. With oil trading at or near $100 how should you play it?
Joe Terranova is Director of Trading at MBF Clearing Corp. Following is a summary of his main points.
Terranova thinks that the refiners are a buy, based on the historical price movement in oil and gasoline. Over the past 12 years, oil has touched new highs in Q3 and Q4 nine timescombined. But in Q1 and Q2, oil has only made new highs three times, he says.
Oil At 52-Week High: Last 12 Years
Q1 - 3
Q2 - 0
Q3 - 3
Q4 - 6
Additionally, in the past 12 years, oil has made new lows nine times in the Q1 and Q2.
Oil At 52-Week Low: Last 12 years
Q1 - 7
Q2 - 2
Q3 - 0
Q4 – 3
This data suggests to me that, historically, oil tends to be cheaper heading into the spring, says Terranova. Gas prices, however, tend to rise or stay steady in anticipation of the summer driving season. Consequently, I think these influences will increase the crack spread (the difference between the cost of crude and the cost of gasoline) and boost margins for the refiners.
What’s the trade?
Terranova recommends accumulating positions in refiners heading into MLK day and having them in place by President’s Day. "Hopefully you’ll accumulate profits in March,” he says.
Jon Najarian recommends shorting the refiners into mid-February and then possibly flipping them to the long side.
Just buy the United States Oil Fund (USO) says Jeff Macke. There’s no need to make it any more complicated than that!
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Trader disclosure: On Jan 3, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (INTC), (YHOO); Seymour Owns (F), (MER), (MSFT), (MBI), (INTC); Seygem Asset Managemetn Owns (SSL), (TTM), (CTCM), Gazprom; Gazprom Is On Pink Sheets In The U.S. But Trades On The Exchange in London; Jon Najarian Owns (AGU), (C), (DE), (GS), (MON), (MOS), (MRO), (POT), (GOOG), (YHOO), (VCLK), (DRIV), (SLB), (UBS), (USB), (IM), (N), (NEM), (MOO), (AG), (NYX), (NDAQ); Jon Najarian Is Short (PNRA), (SFLY), (TSO), (VLO), (YRCW); NBC Universal Is The Parent Company Of CNBC; Terranova Owns (SJT)