The Need for $80 Oil

Why Investors Should Want to Pay More at the Pump

This summer was an interesting one for crude prices. We didn’t see the usual summer price surge in gasoline prices that we often see during the vacation months. Think about it. Have you really heard anyone going crazy about gas prices recently ? Probably not, and you may not since many people have become accustomed to paying under $3 a gallon for gas.

Well, the market has a different agenda. Within the last year we have often seen a correlation between crude futures and the S&P 500. On Wednesday crude dipped below $75 on news that U.S supplies had risen. Gas inventories also rose. Both declines point to a lack of demand which raises questions about the future of the U.S economy.

The economics of the recent falling gas prices are simple. People are not driving as much. It could be from unemployment or the lack of taking a vacation. Both bode poorly for exchanges. From the NYSE to the OTCBB, energy related stocks seem to be stuck in a trading range. Many of you have heard this on the news or maybe even read about it in large cap or penny stock newsletters.

Now here are two questions. Would you rather pay a few more cents at the pump and have you stock portfolio and 401K go up in value. Or, would you rather pay $2 a gallon for gas and have your portfolio decline. I know most would chose the first. This is why longs need cruse to stay above $80.

The good news is this negative sentiment can change on a dime. A world event, an economic report or simply some short covering in oil futures can move the commodity sharply higher within a few days. My sense is that we will see some rally back to $80.

Now how can we take advantage of a short term bottom in oil. On the large cap side you can play it safe you can buy Exxon Mobile (NYSE:XOM). If you want to be a little more aggressive take a peek at some of the drillers. But be careful. The drillers sometimes are almost as volatile penny stocks.

Now how does a penny stock traders and investors play this. My advice is to look at the AMEX for these drilling penny stocks. There are tons of microcap energy stocks trading on this exchange. Some of these former hot penny stocks have decent liquidity too. So do your research now and compile your penny stock list. Also, remember that if your wrong take your losses quickly. Preservation of capital is the key.

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