Here's the right way to play oil
Some investors think they have oil all figured out.
As oil sits at its lowest price since 2009, investors are throwing big money into ETFs. Yahoo Finance’s Jeff Macke says “People are buying these really vanilla ETFs as a proxy for calling a bottom in crude.”
According to data collected by Bloomberg the top four U.S. oil exchange-traded products raked in a combined $1.23 billion in December alone, the most since 2010. The trend is continuing into the New Year as well. The biggest oil ETF, U.S. Oil Fund (DBO) has already received more than $100 million this month.
If you’re looking to predict where oil’s heading, Macke advises you do your homework. Hedging your bets solely on ETFs isn’t a smart play. “If you’re going to aggressively speculate use something else. This USO is a deeply flawed weird ETF that’s not going to give you a one-for-one exchange on the WTI,” says Macke.
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Macke says researching stocks that are closely tied to oil is the better way: “Go with the E&P guys(exploration and production). Go with all these stocks. Look at these companies that are all levered up. They die if crude stays here and they live if crude doesn’t.” Analyzing companies like Halliburton (HAL), whose services and products depend on oil, gives a better snapshot as to where prices are going.
Macke’s bottom line: “Don’t gamble in general. But if you are going to gamble, gamble smart and go with something like Transocean (RIG) and maybe control your risk with some calls.”
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