Investors might have finally seen enough capitulation in the energy sector to start getting bullish. The demand destruction devastation in energy prices seems to have come to a peak a few weeks ago, as oil prices moved into negative territory. The negative pricing was a first for “Black Gold,” which to some has been a black hole for their hard-earned money.
There has been some hope lately that the supply/demand aspects of the crude market are Improving. As economies slowly start to reopen from the COVID lockdowns, OPEC producers are cutting production. Whether the recovery is quick or struggles for the rest of 2020, volatility will certainly remain in the energy space. Because of the big percentage moves seen on a daily basis, a lot of investors are drawn to crude oil and the stocks or ETPs that are tied to the space. But a lot of investors are clueless what to buy and asking one question:
What is the best way to get exposure to crude oil going up?
There are a couple of answers to this question, but let’s first examine the current atmosphere of negative prices and volatility.
Negative oil prices
A few weeks ago, the May futures contract for crude oil went to almost negative $40 a barrel.
How are negative prices possible?
When a trader holds a contract into expiration, they are obligated to take delivery of one barrel of crude oil. Unrefined crude is toxic and smells terrible, so you can’t just throw it in your basement for a couple months. Taking a barrel requires storage and costs money. As of late, storage for crude has been hard to come by and costs a premium because of the amount of crude that is demanding to be stored.
Because of this supply/demand dynamic on storage, the traders that owned those May contracts were willing to pay someone a price to take that barrel of crude from them. The move into negative pricing was essentially the trader willing to pay someone else to deal with the problem of taking delivery.
Volatility creates opportunity
Since the negative pricing, the market has had a hard time trying to find the right price for a barrel of crude. This has created record volatility in oil that has seen historic daily moves, both up and down.
In just the last few weeks, crude oil has bounced over 100% twice! The June contract bottomed at $6.50 on April 21st and rallied to $18.26 two days later, a gain of 180%. After crude fell back to $10.07 on April 27th, it bounced to $20.48 on April 30th, another 103% gain.
This volatility is creating opportunity for short-term traders as well as long-term investors that see value in low prices. Not only are there prospects in the actual energy commodities, but there are also stocks and ETPs that are seeing exciting returns in just weeks!
Continued . . .
2 Stocks to Ride an Historic Rebound
Don’t miss the Sunday deadline to get in on Zacks’ unique approach to the skyrocketing potential of commodities including oil, gold, metals, agricultural products, lumber, currencies, coffee, and more.
Now, as the country starts to open and pent-up demand is about to be unleashed, you can invest in this overlooked asset class the easy way. No futures contracts or option moves – just quality stocks and ETFs.
New moves: We’re about to post Zacks’ 2 best stocks for riding a huge potential surge in oil, where prices are just beginning to release from the pandemic lockdown and the Saudi-Russia squabble. You can be the first to take advantage.
Important: Your chance to access our private recommendations ends midnight Sunday, May 17.
See Our Latest Buys Now >>
How can average investors get in on the action?
Most investors are not sophisticated enough to trade futures. However, there are products that will allow us to take advantage of the big moves in oil, as well as other energy commodities like natural gas and gasoline.
1) Oil ETPs- Exchange traded products like ETFs or ETNS allow investors to get broad exposure to the underlying commodity. USO for crude, UGA for gasoline and UNG for natural gas allow the investor to buy commodities like they would a stock. Additionally, leveraged ETPs allow the investor to take more risk and capture more reward.
Investors can also go to ETFs that capture a basket of stocks instead of the commodity itself. XLE is a popular option that seeks investment results correlated with stocks that are in the Energy Select Sector Index.
2) Stocks- Instead of capping upside within an ETF like XLE, less risk-averse investors can target individual stocks. The rebound of some oil and gas names over the last two months has been impressive. Let’s go over some names and their percentage gains since the March lows to recent highs:
Marathon Petroleum (MPC): 122%
Conoco Phillips (COP): +109%
Phillips 66 (PSX): +87%
EOG Resources (EOG): +82%
Chevron (CVX): +74%
Exxon Mobile (XOM): 60%
3) The Tankers – A group that has flown under the radar until recently is the tanker group. These companies benefit when storage is tight and a premium is paid on crude oil storage. What normally would cost $25,000 a day to store has jumped to over $200,000. This has created a cash flow surge for the tankers, one that investors are paying up for.
Some of the high flyers in this group include DHT Holdings (DHT), Scorpion Tankers (STNG), Teekay (TK), Frontline (FRO), and Nordic American Tanker (NAT).
4) Inverse ETPs- We can also profit from certain commodities going down thanks to inverse ETFs. The leveraged inverse ETF SCO goes up as crude oil goes down and has benefited with a move of over 300% in since the start of 2020!
Here’s what you can do today
Now, more than ever, is perhaps the greatest time in a decade to find exposure to the ups and downs of the volatile energy market.
You are invited to access my latest recommendations in our Zacks Commodity Innovators portfolio.
Launched this past February, the portfolio has already closed quick gains like +39.4% in 11 days, +13.9% in 11 days, and +24.4% in 22 days.¹ But even more importantly, we look to get in early on trends that could carry us for months and years to gains of +100%, +200%, and more.
Our current approach is to stalk the energy sector for opportunity into the end of 2020. We will minimize our risk without being exposed to the futures market, while keeping the same potential rewards. Using the Zacks Rank, there are a plethora of ETFs and stocks to choose from that will allow us to capture this profit potential created within the energy markets.
Our #1 and #2 Oil Stocks
As I mentioned, as the country starts to reopen and with OPEC easing up on production, demand for oil will greatly increase.
From 144 oil and gas stocks in this historic time of opportunity, I’m getting ready to post what I believe to be the two best oil moves of all.
Go ahead and check out the live buys that are currently in the portfolio, and be first to these new trades:
Stock #1. This mid-cap has weathered the pandemic and oil war to be in the green for the year. With rising earnings estimate, it’s a Zacks Rank #1, and I’m expecting its big upside in the next two months.
Stock #2. Already a giant, this oil and gas company looks to keep on growing and surge even higher.
Don’t miss oil’s next big surge. Please remember that this is a time-sensitive, restricted service and only open temporarily to public entry. The deadline for entry is Sunday, May 17.
Right now is the time to look into Zacks Commodity Innovators >>
Jeremy Mullin is a technical expert with 15 years' experience pinpointing the best times to buy and sell commodities. He is the editor of Zacks' newest portfolio, Commodity Innovators.
¹ The results are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors.