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Why You Need to Hedge Your Bets on Oil Right Now

Why You Need to Hedge Your Bets on Oil Right Now

Story Highlights

  • Today, the stock market hates oil.
  • Oil prices are as low today as they were back in 2009.
  • But oil prices will head back up. Matt Badiali knows one way to profit now.

Investors hate oil today. There’s no other way to put it.

There is so much fear of global oversupply that the price of oil is almost back to where it was before terrorists bombed the Saudi Aramco Abqaiq oil processing facility earlier in September.

There may be something to that.

The U.S. Energy Information Administration just updated its short-term energy outlook for 2019.

In January, it forecast the world would consume more than 101.5 million barrels of oil products per day. In the September version, it revised that estimate down to 100.8 million barrels per day.

That’s a reduction of less than 1%. That small decrease may seem insignificant to you.

But if the forecast comes true, it would make 2019 the first year since 2011 that the world’s oil product consumption grows less than 1 million barrels per day.

To refresh your memory, that year, oil prices fell from $113 per barrel in April to $76 per barrel in October. That’s a 33% fall in six months.

Then a remarkable thing happened after October: The price rallied. It rose from $76 to over $101 per barrel by December. It was a 33% gain in just two months.

My point: Oil prices are volatile.

And today, the market is all on one side of the trade.

Oil Prices Hit Their Lowest Point Since 2009

Take a look at the chart of the SPDR S&P Oil & Gas Exploration and Production exchange-traded fund below:

As you can see, oil just hit its lowest price since 2009.

To put this into perspective, the market is looking at oil the same way it did at the bottom of the financial crisis.

And yet, we aren’t there. Our economy is plugging right along. There are risks, but they aren’t anywhere near as bad as the bottom of the financial crisis.

Hedge Your Bets on Oil Before Prices Rise

When the bombs hit Abqaiq, they knocked out 50% of Saudi Arabia’s oil production and 5% of the world’s oil supply.

That could have been a disaster.

The Saudi engineers who restored over 11 million barrels per day saved you and me a lot of money. If they didn’t get that oil flowing, oil prices would have gone through the roof!

Let me give you an idea of what I mean:

  • Shipping costs, airline tickets and anything else that consumes oil would cost more.
  • If the world faced a 4 million barrel per day shortfall, only the folks who could pay would get the oil.

That’s a scary thought. It keeps me up at night.

That’s why we must hedge our risk. We all have enormous exposure to oil prices. Last week, I urged you to protect your assets.

You can buy a few shares of the Energy Select Sector SPDR Fund (NYSE: XLE) to hedge your risk.

The oil sector is too critical to the world for it to be this hated for long. That’s something we focus on in my Real Wealth Strategist newsletter.

Finding sectors that are at or near the bottom and profiting as they move higher. That’s the situation we find oil in today. And I’ll have a way to profit in the next issue.

Click here to learn more about how you can join my readers on these trades.

Good investing,

Matt Badiali

Editor, Real Wealth Strategist

 

 

About The Author

Matt Badiali

Matt Badiali has a hands-on, go-anywhere, talk-to-everyone approach to his investment prospects and research. His work has taken him to Papua New Guinea, Iraq, Hong Kong, Singapore, Haiti, Turkey, Switzerland and many other locations around the world. He’s visited countless mines and oil wells the world over, interrogated CEOs about their latest resource prospects and analyzed all manner of geologic data.

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