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Bet on Oil above $80

Finally economy is going some signs of life and if there is one price which could reflect (and predict) direction of economy, I would say it is oil price. Now that oil is above $70, it is predicting a recovery in second half of 2009 and early 2010. In Oct 2008, I predicted oil price heading to $80 - while I was off by about 9 months, it is finally reaching that target (after making a trip to $32). While oil has recovered, Natural Gas (NG) is still at bottom and trading below $4. Normally the ratio between oil of price/oil of NG is about 10-12. Currently it is nearly at 18. This is due to following facts:
  • Oil is movable commodity unlike NG. Natural gas can be moved only with pipelines whereas oil can be moved across oceans. 
  • Hence the ratio is widening since China and India are recovering while US (biggest producer and consumer of NG) is still slow in recovery. When there are definite signs of US in recovery and growth, NG would start going up
So here are my predictions (by year end 2009):
  • Oil between $80-90
  • NG above $5-6
So how can we as investors take positions ? I have been studying some MLPs and there are many opportunities (though risky ones). Here are some ideas which combine my usual investing strategies of "survival" and "perpetual call option" :
  • Delta Petroleum (DPTR): Buy price $2.2, Target price in 12 months: $3.5
  • Atlantic Pipeline LP (APL): Buy price $8, Target price in 12 months: $12. This was my recommendation few weeks back at $4 and now it is trading above $9. Wait for it to come down before taking any position. Alternatively you can consider following stock. This is a dividend paying stock
  • Crosstex Energy LP (XTEX): Buy price $4, Target price in 12 months: $6. This is my stock of week recommendation. It is similar to APL and has potential to go up similar to APL in next few weeks when they close on deal to sell assets for above $200 M and reduce their debt load. Being MLP, it is required to distribute majority of its income to unit-holders.
  • Precision Drilling Trust (PDS): Buy price $5, Target price in 12 months: $7. This was one of my past recommendation.
So if you want to bet on world economy recovering, oil/NG are best way to play the recovery.

Good luck and have a good weekend!

/Shyam



Comments

Anonymous said…
My comments is that the blog comment is enabled now.

Thanks.
-Abdeli
6:29 AM
Larry Goldstone said…
You do not allow dissenting opinions even when in the past they have proven to be far more right than wrong...why is this?

ever read any books about trading???
11:57 AM
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