The United States Oil Fund (NYSEARCA: USO) is perhaps the most efficient and direct way to invest directly in the price of oil. USO ETF is designed to track the daily price movements of West Texas Intermediate (“WTI”) light, sweet crude oil.
The goal for USO ETF is for it to track the daily changes in percentage terms of its shares’ NAV, that reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered directly to Cushing, Oklahoma.
Specifically, USO ETF invests in listed crude oil futures contracts and other oil-related futures contracts, and may invest in forwards and swap contracts.
We saw oil prices collapsed a few years ago back down to $26 a barrel. Generally speaking, prices between $60 a barrel and $80 a barrel create just about the right tension in the market for energy producers and providers of all stripes to make money. Shale operators, for example, need to have higher prices than the big legacy exploration and production companies.
Oil Stock Alternative
Outside of actually owning a barrel of oil in your backyard, this is about the most direct way you can have exposure to the price of oil itself. I have, on occasion, traded oil via USO ETF. Yet, as a commodity that can move in any given direction on any given day based on factors that are impossible to determine, I’ve traditionally just relied on technical analysis.
Aggressive investors may want to initiate a position at the 20 day exponential moving average. then possibly add to it at the 50 day exponential moving average. And then perhaps a stop loss depending on one’s appetite for risk.
More conservative investors may wait to see if USO stock breaks out above $13.25.
Beyond United States Oil Fund ETF, you want to be invested in companies that have deep penetration into the human experience, and there is no denying that fossil fuel energy has been and will continue to be a central component for human life on this planet.
So, from a long-term perspective, you can’t go wrong owning some form of oil-related security. In the short-to-midterm, however, the price of oil matters. If the price of oil gets too high, it can have terrible effects on the economy, the great effects on energy stocks.
If the price of oil gets too low, it can help the economy, but be terrible for energy stocks. It is arguably even bad for the economy, because a lot of people can get laid off in the energy sector.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
