Sold 75% of my DUG position at 29.2 this morning. There seems to be heavy resistance in 29-30 area and i wanted to lock in my gains incase DUG heads back down again. I still believe that the market will continue downwards in the coming weeks which will take the Oil Service stocks down too. I will buy DUG again if it convincingly breaks upwards over 30 and the OIH breaks below support at 206.
Refiners are starting to look like a great play soon..not yet though. The refiners have finally managed to pass on $4 gas to consumers. When the price increase is steady like it has been recently, consumers are less affected by sticker shock and gradually accept the higher prices. In cases where there is a sudden spike in prices (after Katrina and Rita in 2005...with $4 price at the pump), consumers are affected with "sticker shock" which affects demand drastically.
Once crude oil prices start falling, the refiners will be able to maintain these high prices for a while thus improving their margins. Refiners make a profit on the "Crack Spread" which simply put is the difference of their raw costs (barrell of crude oil) - the price they charge at the pump. Thus is crude prices fall, it'll improve their crack spread margins.
I'm seeing some good action in VLO (Valero), SUN (Sunoco) and TSO(Tesoro) today. However, i'm not fully convinced now's the time to buy refiners yet but it will be soon.
Subscribe to:
Post Comments (Atom)
0 comments:
Post a Comment