Thursday, December 11, 2008

Buy Physical Oil, Not Energy Stocks

Enjoying the lower gas prices lately? Well, now's the the time to fill up your tank some more because oil prices may be on its way up again. The chart on the right shows the ratio between energy stocks and crude oil prices, and in the background is oil price. Notice that high points in the ratio are associated with a bottom in oil prices. If you subscribe to the commodities supercycle theory, this may be your chance to stockpile on oil again. Looks like this is exactly what Jim Rogers is doing.

As a commodities bear, I personally do not believe this is a long-term buying opportunity for oil. There are three conditions that need to be met for me to consider commodities.

1. Currencies of commodities producing countries bottom
2. Real assets become undervalued to financial assets
3. US dollar about to enter a long-term bear market

Currently, none of the three conditions are met, which means any bounces in oil are merely bear market rallies within a long-term commodities bear market.

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