Number One Pick to Prepare for a Bounce in Crude

I have, for a few weeks now, been saying that I expected crude to move lower based on questions about demand, particularly from the US and China, the world’s two largest oil consumers.

That has been the case, and despite a bounce after breaking below $70, there could still be a little more room to the downside on that trade. However, oil will turn at some point, so I have been taking some of my profit from the short trades and looking around for oil related stocks to buy.

However, because I am still not convinced that a real recovery in crude prices is imminent, I have been looking at downstream companies rather than anything in the E&P space. As you may know, falling prices can actually be an advantage for refiners and marketers of oil products as they increase the “crack spread”, the difference between what they pay for crude and what they get for the refined products they sell. Despite that, when crude is in a bearish trend based on demand questions, downstream stocks will still fall, but the crack spread advantage means that they will often be the first to bounce should sentiment begin to turn.

There are reasons to believe that could happen quite soon.

In trying to gain the middle ground in US politics, Kamala Harris has taken a much more fossil fuel friendly stance on energy policy recently. I am not one to trust any politician to do what they say they will do, but the Democratic candidate’s public renunciation of the anti-oil rhetoric will at least.