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Holy Short Squeeze Batman

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=89734&t=01...

I took a break from work this afternoon to sneak a peak at what oil was doing and I was blown away. Obviously, I'm about as bullish on oil as they come and I wrote this morning that I strongly believe that the recent government bailouts are bearish for the U.S. dollar and in turn bullish for commodities like oil (see post: Inflation vs. Deflation). However, I didn't expect such an rally only hours after I wrote this.

The October crude oil contract today rallied briefly to $130 per barrel before dropping falling to $120 at market close. Today is the final day of trading for the October contract and apparently there were a number of traders caught with short positions in crude oil who had to pay dearly to get out of their contracts. Good.

It is difficult to say whether oil will find support at the $120 level. I suspect it might pull back a little in the short term. The December contract is a good baramoter of where oil is headed over the next several days. It was up "only" $5.77 per barrel today to $108.31.

The short-term fluctuations of the market are always hard to predict. I strongly believe that we will see and I have positioned my portfolio to benefit from triple digit oil in 2009. My oil plays are fairly conservative. They will be fine with anything over $80 and absolutely amazing with anything over $100. Any prices above that are just gravy.

Also of note on the oil front:

- Mexico May Say Oil Output Fell, Pressuring Congress: Week Ahead (http://www.bloomberg.com/apps/news?pid=20601086&sid=a6KA...)

- Bloomberg: Dollar May Get `Crushed' as Traders Weigh Up Bailout (http://www.bloomberg.com/apps/news?pid=20601109&sid=abac...)


- China cuts benchmark interest rates to ensure steady growth (http://economictimes.indiatimes.com/News/International_Busin...)

Deej
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Greetings from Beijing!!! I am here on a layover. I just checking what the markets did yesterday in the states.

I am also positioning my portfolio that way to profit from what I believe will be continued high oil prices. I also want to position in other commodities like Zinc. SLT and ZINC look interesting to me.
Gotta go.


Rob S
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So Deej:

Assuming your affiliation allows you to answer this, what would be examples of what you see as good plays?

I for one hope we do not see oil go much higher, as I am in a global business (making furniture in asia that is primarily sold in North america) and higher shipping costs are not a good thing. On the other hand, I think that we need to at least level off here to get the US out of the gas guzzling habit so that the resources can be turned to "higher and better uses" of oil such as containerized ship lines, air travel etc (admitting my bias towards globalization).

That said, what would you see as good plays?

Jody
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Hi Jody. While I am extremely bullish on oil, I am at a place in my life with two young children and a wife who is not currently working that has led me to play the sector a little more conservatively than I ordinarily might.

I am staying away from anything that needs super high oil prices, like oil sands and deepwater for now, though I am still fairly optimistic that companies in the latter category like RIG and PBR will do extremely well over the next several years.

Oil services and drillers should do very well over the next several years as well, assuming that one has the stomach to hold on and ride out the inevitable ups and downs in the price of oil and nat gas.

I personally am in E&P (Exploration & Production) companies that pay high dividends. Look for ones that have low payout ratios, a manageable debt level, and that are growing their reserves consistently.

I would love to trade the physical commodities themselves, but I have friends who do so and it is a VERY dangerous game if you do not have the time to watch your positions like a hawk. I work too much to invest that sort of time in it.

Deej
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