My high level thoughts are as follows:
Oil ($WTIC) will bottom out somewhere in the $20 range (when, I don’t know). OPEC is flooding the market with hundreds of thousands of barrels each day to force the price down to the point where most if not all American companies are forced to cease operations. The bankruptcies are already piling up from 2015 and will accelerate in 2016. Once the majority close shop, OPEC will pull back production and the price will increase (perhaps rapidly).
As it stands today, most American shale companies require crude to be at $60 per barrel to stay profitable. The leaders are getting by, by using efficient methods but the break-even point is still well above the current price level of crude oil.
Another thing we should watch is the proxy war between Saudi Arabia and Iran (hat tip to a friend on this perspective). When Iranian crude comes on-line, prices will drop again. Maybe that sends prices below $20 (unless already priced into the market, which it probably is). The United States and Russia will be squeezed tremendously, the question is, will the US bail out or prop up their oil companies (my guess is no, as that would be highly political, being oil companies). When gauging public opinion: propping up GM in 2008 is a lot different than bailing out the “big bad (& rich)” oil companies.
Bottom line: oil is not at the bottom yet and prices can drag along the bottom for a long, long time. But in the end, oil will come back up (it’s a matter of how long will that take). We just need to find the best vehicle to place this trade at the right time.
Do we do this using ETFs, leveraged ETFs (short term), futures, specific equities, etc.
Perhaps a combination of all of them, depending on the time frame of the trade.
I see crude a lot higher than it is today, 12, 18 and 24 months into the future but I haven’t determined the correct vehicle to make this longer term trade (ETFs decay, futures aren’t my game and individual equities are risky). I’ll keep you posted on my moves…