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WHY YOU CAN’T BE SHORT OIL

5 April 2009 by Cullen Roche 5 Comments

Oil is up 49% from its December bottom.  Although black gold is down 65% since its peak last year many investors view oil’s rise as a sign of global growth gaining traction.   Many investors, myself included, are still skeptical of the strength in global markets, but oil is not the way to bet against this possibility.  Why you ask?   Because of North Korea.  While investors were celebrating the entirely uneventful G20 meeting North Korea was preparing for a bright sunny day to fire a missile into space.  Not just any missile, but a long range ballistic missile.  Specifically designed to reach the Hawaiian Islands with the hopes of one day reaching the west coast of the U.S.  This is the kind of global unrest that will send investors into the safety of commodities such as oil.  That is assuming of course, that anything comes of this little sideshow Kim Jong-Il is putting on.  While it may be tempting to short oil after its spectacular move off the December bottom I believe this sole unknown is reason enough to avoid a short position.

Cullen Roche

Cullen Roche

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Comments
  • vfsv

    If your oil/fear premise is correct, why did gold do down hard late last week? (FWIW, I assumed it was the usual Friday shenanigans plus, maybe, a sign the overall market was ready to roll over since gold has lately, more-or-less, gone up & down with market…)

    04/05/2009 at 4:16 PM
    • Cullen Roche TPC

      Great question. I am not gonna lie – gold has me thrown for a loop. For 50 years it has traded with a high inverse correlation to the dollar, but in the last 6 months that has totally changed. The dollar has strengthened along with gold. The relationship continues today. It's extremely odd.

      04/05/2009 at 6:10 PM
      • vfsv

        FWIW, I hear the IMF plans for $50B of its contribution to the G20 $1T bail-out fund will come from selling off some of its gold. So the "fear" in this fear trade is maybe that the "global TARP" will work?

        04/06/2009 at 5:12 AM
  • Don

    so, what is the best way to play the long-term appreciation of the price of oil? we've seen that the ETFs are lousy because of contango. is buying long term future contracts, ($65 dec 2011 for example), really the only way to play it?

    04/05/2009 at 4:26 PM