Last call for Oil at $102 – Get ready for the profit taking!

To me, the Middle East scenario is just about baked in. With Oil Prices hovering just above 100usd, the saber rattling and unrest aren’t enough to move the needle any further north.  Now only the more catastrophic scenario remains – an OPEC nation like Iran or Saudi Arabia goes into serious turmoil. That is a true black swan though – possible, but improbable.

I would definitely be alert for it, and keep your eyes on the OPEC countries instead of the noise in North Africa, but I wouldn’t exactly hold my breath. Even as to Libyan unrest, one multinational commission is making inroads so it’s just a matter of time before diplomacy makes this Oil price shock a damp squib.

We keep getting told of worldwide “fears that the unrest sweeping the Middle East and North Africa could affect supplies elsewhere in the region.” (Bloomberg) The more talk of this, and of course Nomura’s immature 220usd oil headline last week, make me think these fears are way overdone, and a settlement to the conflict in Libya is on the horizon. The piercing of triple digits was expected, and now that it’s happened, I think we should get ready for some massive profit taking.

I used the HiddenLevers Macro Trend Screener to find investments that would do the best as Oil Prices go back down. Two industries stand out as being very inversely correlated with Oil Prices –Airlines, and Auto Parts. Below are two good examples of ways to play Oil coming back into double digits. United Continental Airlines (UAL), with a -.49 Oil Impact., and Dana Holding Corporation (DAN) with a -.66 Oil Impact. Think of these stats as the Oil Beta of the stocks mentioned:

If you disagree, then guess what? Take these macro ideas and buy puts against them, or short sell them. The point is using your macro-economic outlook to generate the best trading or investment ideas.

DISCLOSURE:  no positions held.


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