Get Rich when Oil Prices Fall
Oil prices fall and oil prices rise.
But if you’re smart, you can make money from both scenarios.
Of course, since January 15th, it’s been all about profiting from tumbling oil prices.
On January 15th, oil topped out at $80.77.
Yesterday, they hit a low of $55.30.
Think about that for a moment.
In less than 4 months, the price of oil has plummeted more than 37%.
Not great for oil bulls, but an excellent opportunity for those who saw the writing on the wall early on. And knew that the coming trade war would gut oil prices.
Since this trade war began, we’ve witnessed the following …
- U.S.-China container traffic has fallen dramatically, which has resulted in slowed demand for shipping and aviation.
- Shipping firms are now reporting cancellations and a slowdown in bookings.
- The IEA, EIA, and OPEC have now cut demand forecasts for oil based on this trade disruption and less-enthusiastic economic outlooks.
Of course, as I noted last month in my article: The Best Oil Stocks to Buy as Oil Prices Plummet, a good way to play oil demand shortfalls is through the inverse oil ETF ProShares UltraShort Bloomberg Crude Oil (NYSE: SCO).
Since January 15th, which was the last time we saw oil trading above $80 this year, SCO has delivered gains in excess of 67.6%.
The question, of course, is …
How much further will oil prices fall?
Last month, I noted that Goldman Sachs predicted that WTI prices would fall to $58 by the end of the year.
Goldman just updated that forecast with a new WTI price of $56.
Of course, it’s hard to know for certain. After all, the longer this trade war continues, the further oil prices will fall. And this isn’t good for U.S. oil companies. Because, you see, they need oil prices to clock in at around $62 per barrel, as this is their average breakeven price.
So we have to ask: who is more powerful? President Trump or Big Oil?
My money is on Big Oil. And while I don’t expect to see oil prices rebounding in any meaningful way in the near-term, long-term, oil prices will climb back up to around the $70 per barrel level. This, once this brutal reality of trade war practices pisses off enough billionaires who are losing far more than they’re gaining from Trump’s trade policies.
At this point, I’m still treading lightly, though. After all, while you can certainly make a lot of money with an ultrashort inverse oil ETF, you can just as quickly lose it if oil suddenly spikes. So play it safe. Wait for some clarity on when this trade war will actually end, and take advantage of these low oil prices by grabbing some shares of a basic oil ETF, such as the United States Oil Fund (NYSE: USO) or the ProShares Ultra Bloomberg Crude Oil ETF (NYSE: UCO).
Or, if you prefer a single stock strategy, consider single oil stocks. Particularly those that offer generous dividends. Here are a few to consider …
- Energy Transfer LP (NYSE: ET) – 8% dividend yield
- Chevron Corporation (NYSE: CVX) – 5% dividend yield
- Civitas Resources (NYSE: CIVI) – 7.3% dividend yield
The next few weeks will be quite tense for oil traders. So I would be very cautious about making any sudden moves until we get some clarification on how this trade war is going to play out.
Jeff
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