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Crude Plunge Presents Big Opportunity, but Not in Oil Market: Pros

Wednesday, 19 Sep 2012 | 5:26 PM ET

If you’re a trader chances are you’re keeping a close eye on the oil markets looking for opportunity amid a pronounced sell-off.

Prices have plunged about 8% in less than a week, with the catalysts behind the decline varied and somewhat uncertain.

Earlier in the week, speculation was swirling that the Obama administration planned to release oil from the SPR but so far that hasn’t happened. Nonetheless, the market rumor may have been enough to spook some energy bulls.

Crude's Plunge Generating Trades: Pros
Top traders Joe Terranova and Guy Adami reveal how they're positioning to profit from the sharp decline in crude oil.


Also, an article in the FT said Saudi Arabia intended to boost production and increase supply for its biggest customers including the United States. By some estimates Saudi Arabia could generate 10 million barrels a day, a 30-year high. That too is bearish.

In addition, technicals have turned south.

On Wednesday, Brent crude slipped below the 50- and 200-day moving-averages, while WTI dropped below its 50-day moving average of $93.08.

Considering the sharp move in oil, how can you profit?

If you’re looking to play the spot price, top energy trader Joe Terranova thinks you’ve got the trade all wrong.

“Crude is notorious for disappointing,” says Terranova, chief market strategist for Virtus. "It gets into a pattern where it disappoints both the bulls and the bears. That's where I think it is right now."

Terranova goes on to explain that there are both positive and negative catalysts in the market. “I think the IEA release could limit upside while the turmoil in the Mideast limits the downside.”

Instead, Terranova as well as trader Guy Adami both say the trade is long refiners. “That's who will benefit from the increase in inventories.”

And if you’re looking for a single stock – both are bullish on Valero . “If it holds $30 to $30.50 I see upside to 35 or 36,” says Adami, managing director of stockMONSTER.com.


Posted by CNBC's Lee Brodie

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Trader disclosure: On Sept. 19, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Jon Najarian is long call spreads in AAPL; Jon Najarian is long call spreads in JPM; Jon Najarian is long call spreads in GLD; Jon Najarian is long call spreads in FB; Jon Najarian is long call spreads in AMZN; Jon Najarian is long call spreads in GOOG; Jon Najarian is long call spreads in SINA; Jon Najarian is long call spreads in OPEN; Jon Najarian is long call spreads in GLW; Jon Najarian is long call spreads in PXD; Jon Najarian is long GLUU; Jon Najarian is long CME; Jon Najarian is long CBOE; Jon Najarian is long STSI; Steve Weiss is long AAPL CALLS; Steve Weiss is long EUO; Steve Weiss is long M; Steve Weiss is long AIG; Steve Weiss is long BAC; Steve Weiss is long BBT; Steve Weiss is long LCC; Steve Weiss is long QCOM; Steve Weiss is long SODA; Steve Weiss is long BRCM; Steve Weiss is long HK; Steve Weiss is long CLNY; Steve Weiss is long AMTG; Steve Weiss is long MTGE; Steve Weiss is short AAPL PUTS; Steve Weiss is short AKS; Steve Weiss is short RIO; Steve Weiss is short VALE; Brian Kelly is long GLD; Brian Kelly is long SLV; Brian Kelly is long QQQ; Brian Kelly is long EEM; Brian Kelly is long TIP; Brian Kelly is long RNA; Brian Kelly is long WHEAT; Brian Kelly is long CORN; Brian Kelly is long SOYBEANS; Steve Grasso is long AET; Steve Grasso is long ASTM; Steve Grasso is long AUO; Steve Grasso is long BA; Steve Grasso is long F; Steve Grasso is long LNG; Steve Grasso is long MHY; Steve Grasso is long NVIV; Steve Grasso is long PFE; Steve Grasso is long S.


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