On Tuesday money pros were taking a long hard look at how to capture gains, with chatter suggesting crude oil was about to break out – above the $105 level.
The catalyst was geo-political; the rising tension between Iran and the Western world over Iran's nuclear program.
“There’s no reason to be anything but long,” says top energy trader Dan Dicker of MercBloc. He compares the price of oil to a spring in an alarm clock that’s being coiled tighter and tighter.
In other words, at any minute the price could absolutely explode higher. That’s because there's potential for supply issues - big supply issues.
The United States and the EU have urged other nations to cut their use of oil obtained from Iran as a consequence for Teheran’s nuclear program. Looking at Iran’s biggest customers, “China has dropped imports (from Iran). India and Japan seem to be doing the same,” says Dicker. Meanwhile, Iran has said it will stop exporting oil to Britain and France.
What's the bottom line?
In the near term, Dicker and the Fast traders all think Western nations could be looking at a serious deficit of oil. If you’re looking for a trade, Dicker suggests E&P companies – especially those that can generate additional supply. “I’d play it with Apache , Total and even BP ,” Dicker says.
Looking downstream, if demand remains constant but supply drops - price should go higher. “They already have it in California, but prepare for $4 gas this summer, all across the nation.”
As a result, Dicker recommends another trade. “I’d start to look at nat gas,” he says, especially companies such as Devon and Cimarex .” He thinks with gas above $4/gallon motorists will become all the more interested in cars that run on nag gas. “$4 gas equals $1.60 in nat gas,” says Dicker.
Top energy trader Joe Terranova has a few other ideas. “Hess is highly correlated to the spot price of oil,” he says. “If you think oil is going even higher, I’d go long."
And he says look at Suncor , which is based in Calgary. As circumstances in the Middle East devolve Canada may become that much more important.
“I have little doubt that oil prices are going higher,” says Terranova, “it’s just a question of how high.”
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Trader disclosure: On February 14, 2012 , the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova is long VRTS; Terranova is long IBM; Terranova is long HPQ; Terranova is long MCD; Terranova is long EMC; Terranova is long OXY; Terranova is long SBUX; Terranova is long SWN; Terranova is long MSFT; Terranova is long YUM; Terranova is long TBT; Terranova is long FXE; Terranova is long LPX; Terranova is long LQD; Weiss is long MDRX; Weiss is long DMND; Weiss is long CHK; Weiss is long EUO; Weiss is long CSC; Weiss is long F; Weiss is long BKU; Weiss is long QCOM; Weiss is long NS; Weiss is long POT; Weiss is long SNDK; Weiss is long WLP; Weiss is long VZ; Weiss is short MT
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