By Nicholas Santiago on January 11th, 2010 1:04pm Eastern Time
On December 11, 2009 spot crude was trading around the 71.00 level. The Christmas shopping season was underway at that time and the lower gas and fuel prices had helped to make the consumer jolly. Perhaps the extra money in the pocketbook helped to buy a little more for the holidays. In any case it always feels a little better when you can save at the gas pump. Since that time oil has rallied above $82.00 a barrel. People who started to feel jolly are now saying to themselves what did I do? Why did I spend that extra cash on a gift that really wasn't needed? This is the psychology that goes through peoples mind when they see the price of oil going up.
Recently the weather in the United States has been a major factor. A severe cold front has swept the nation from New York to Florida. States such as Nevada and Texas have experienced major cold temperatures. I have read that every time a person uses the heat in Florida it costs them an average of $10.00 a day more in energy costs because the systems are generally built to cool their homes and are not efficient when using heat. This is a direct tax on the American consumer.
Here is the big problem. Currently unemployment in the U.S. is about 10 percent by government standards. Many people are still trying too catch up or recover from the financial crisis last year. If unemployment is actually higher the higher energy price is simply a burden and a direct tax on the U.S. consumer. Can America handle oil prices above $80.00? In July 2008 when oil traded at 147.00 a barrel this was one of the major catalysts that broke the back of the market.
There are a few ways to play oil using ETF's. One way is to trade the U.S. Oil Fund ETF(NYSE:USO) which is trading slightly lower on the day. This ETF does look to be into resistance levels on the daily chart. Oil can also traded by using the leveraged ETF's such as Ultra DJ-AIG Crude ProShares(NYSE:UCO) which is two times long crude. The two times short crude ETF is UltraShort DJ-AIG Crude Oil ProShares(NYSE:SCO).
Nicholas Santiago,
Chief Market Strategist
www.InTheMoneyStocks.com
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