How to profit from the oil squeeze

Is the rising cost of living worrying you?

If it is, today I’d like to show you a way that you can profit from the exact same thing that’s squeezing everyone else …

I’m talking about oil.

As promised, this week we’ve got the latest report on oil from our tame hedge-fund analyst – this comes from the same team who predicted that 7% swing on gold at the end of last year.

This report is exclusive to Trader’s Bulletin, and you can access your copy here [download no longer available].

Meet “the daddy”

There’s something about trading commodities that gets me really excited.

Even though I’m usually spread betting, and there’s no chance of a lorry load of “lean hogs” being delivered to the back door – there’s a physicality to commodity trading that you simply don’t get with stocks, indices or forex.

And when it comes to commodities, oil is the “daddy”.

Many traders view oil as the most important commodity. Sure, it doesn’t feed one third of the world’s population, like rice does, but oil is needed for fertilizers, for distribution, and without oil, most of the world’s economies come to a grinding halt.

Even if you’ve no interest in trading commodities, you can’t ignore the price of oil. It affects industrial output … inflation … consumer spending … and just how light your wallet feels after you’ve been to the petrol station …

So, if the oil companies are going to squeeze us at the pumps – shouldn’t we make sure we’re getting a slice of that action?

George Osborne is getting his slice by hitting the North Sea oil companies, but as we’ve seen in recent years, oil companies can give investors a very bumpy ride.

Oil: the basics

If you’ve never traded in oil before, there are a few things that will be useful to know …

First off, the stuff we’re talking about is crude oil – this is the thick black goo that comes out of the ground. This is then refined to bring us the stuff we recognize as petrol, heating oil, plastics, etc.

When you look on your trading platform for oil, you’ll probably find two different prices on offer:

Brent Crude: This is the stuff coming out of the North Sea, and two thirds of the world’s internationally traded oil, from Europe, Africa and the Middle East is priced relative to UK Brent Crude.

US Light Sweet: despite sounding like something the wife puts in her coffee, this is actually the stuff that comes out of the ground on the other side of the Atlantic. Apparently is contains less sulphur, so has a “sweeter” smell. It’s also called US Crude or West Texas Intermediate.

Peak Oil: If we remember that oil is formed from the remains of marine animals and plants that lived millions of years ago before the dinosaurs, it is logical to assume that, at the rate we’re going, we’re going to deplete those resources. On the flip-side of that coin, we are constantly developing new and better ways to access hard-to-reach oil reserves. Peak oil theory is the science of trying to work out just when global oil production will hit a peak and then start to decline.

OPEC: This is the Organization of the Petroleum Exporting Countries. It hosts regular meetings among the oil ministers of its member countries with the principal goal of safeguarding its members’ interests. Opec members collectively hold around 80% of the world’s crude oil reserves, so their ability to control the price of oil is considerable. If you are trading oil, you should keep an eye on the dates of OPEC meetings.

Driving Season: When a commodities trader first told me about the US driving season, I thought he was pulling my leg. How wrong I was. There is a date (30 May – put it in your calendar) when Americans get into their gas-guzzling cars, fill up at the pump and go, errr, driving … And they keep at it until Labor Day in September.

With that knowledge in mind, I’ll now leave you to peruse your oil report.

Until next week,

Mark Rose

P.S. Volatility is the watchword with oil – it’s what makes this such a fun, dynamic and potentially profitable instrument. If you’re new to trading oil, take your time – have a play about on a demo account until you get a feel for it.

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