By Nicholas Santiago on April 13th, 2010 1:06pm Eastern Time
Everywhere we turn today we hear about the growth in China and India. These huge nations combined have nearly 2.4 billion people living in them. Therefore, as long as these countries continue to grow, their energy consumption should expand. These emerging countries have certainly been a major factor to the rising price in oil over the past year.
In July of 2008, spot crude hit a high of $147.00 a barrel. The catalyst for such a high price in oil was a weak U.S. Dollar along with global demand from China and India. Today crude is trading around $85.00 a barrel as China and India continue to grow and expand. Therefore, one must ask, why is oil so far below its 2008 high when the global markets have recovered so much and are back to 2008 levels?
The first reason for this move is the U.S. Dollar, PowerShares DB US Dollar Index Bullish (NYSE:UUP) . The dollar has gain in strength since late November, 2009. When the dollar is stronger most commodity and inflationary stocks will be kept in check. The second reason is the high amount of oil inventories that are in the marketplace. One can only wonder why in 2008 so many analysts and experts said we were near peak oil levels and today we are flooded with crude. Ah, what a difference a couple of years make. If global crude demand is truly picking up then oil should rise much further.
During the economic crisis we used to hear about alternative fuels and green shoots. Today we hear about more offshore drilling projects in the U.S., Brazil, and other nations. At the same time many people such as T. Boone Pickens and countless politicians made a case for natural gas to emerge as a new clean energy source. Natural gas can't seem to catch a bid as oil seems to be the energy of choice. What it really comes down to is simple, if oil is truly in demand it will rise. However, can the American and European consumer handle $90.00 oil prices? The answer to this question is, not for next few years.
Traders that want to play oil can use commodities contracts or Exchange Traded Funds. Traders can use the U.S Oil Fund (NYSE:USO) if they want to play the long side. For traders that want to double short oil can use the Proshares Ultrashort DJ-UBS Crude ETF (NYSE:SCO). If traders would like to play natural gas they can use the U.S. natural Gas Fund ETF (NYSE:UNG).
Nicholas Santiago
Chief Market Strategist
www.InTheMoneyStocks.com
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