Taming the Crude Oil Beast – Playing the Volatility

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WTI crude oil ( USO , quote ) continues its climb higher overnight to over $104.40 a barrel before settling back under  $104 handle at U.S. equities open.  Crude oil has not seen $104 handle since mid-September.

Gasbohrung_'Völkersen-Nord_Z6'_(RWE-Dea) Everywhere you turn the past 6-9 months, headlines boast how much crude oil is being found with new technologies such as fracking.  So why the run up?

As many of you know, the answer to the question is the extreme heightened political risk between Russia ( RSX , quote ) and Ukraine, and U.S. and European Union threats to place sanctions on Russia.


The issue escalated over the weekend when Ukraine pro-Russian separatists failed to leave government buildings by Monday's deadline.

Reports over the weekend indicate that pro-Russian separatists are well armed, fueling speculation that Russia may have supplied weapons to the separatist, although this has yet to be proven.

This new round of heightened turmoil has pushed the U.S. to indicate it will impose additional sanctions against Russia if Russia continues to test and push for encroachments in eastern Ukraine region.

As tensions continue to mount between U.S. and Russia, companies and crude oil traders grow more and more nervous with Russia pulling its crude oil off the market.  Russia is the world's largest energy exporter.

Add in to the mix this weekend helping to push crude oil prices higher are reports that there will be delays in exporting Libya's crude oil.   Market participants' were expecting Libya to resume exporting by now.  Officials and rebels continue to fight over two of Libya's ports to the extent that Libya's interim Prime Minister Abdullah al-Thinni resigned late this weekend after threats were made on his family.   He was just made interim PM a month ago.

Bottom Line: Crude Oil will remain inflated as long as Russia and Ukraine remain at odds.  Can crude oil move higher?  Sure, if Russia escalates the matter further, but Russia depends on crude oil exports when we boil all things down.

But this does not mean we cannot play in the space. Later today we will explore how to grab the sweet spot of each morning's move in the crude oil futures in the Emerging Money Trade Idea Section of the website.  We will also look at a way to play crude oil's move in the equities market. Be sure to get your login now…



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , International , Stocks

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