Friday, October 16, 2009

Crude Oil rally to continue

Crude Oil is expected to rally after it achieved a bullish breakout of its triangle formation yesterday. You can see from Chart 1 that WTIC has broken to the upside of the triangle at USD75.

Chart 1: WTIC's daily chart as at Oct 15, 2009 (Source:

To gain direct exposure to the Crude Oil price rally, one may consider buy into an Oil funds or ETF, such as United States Oil Fund LP ETF (or USO).

Chart 2: USO's daily chart as at Oct 15, 2009 (Source:

We have a CW for USO listed on Bursa, called USO-C1. The main terms are:

Expiry Date: April 7, 2010
Exercise Price: USD36.70
Exercise Ratio: 200:1

Based on yesterday's closing price for USO-C1 at RM0.125 & USO at USD39.91 and an exchange rate of USD1=RM3.40, USO-C1 is now trading a reasonable premium of 10%.

Chart 3: USO-C1's daily chart as at Oct 15, 2009 (Source: Quickcharts)

If you do not fancy buying into a thinly traded security such as USO-C1, you can look at the oil services stocks listed on our exchange. My preference is for Dialog (go here). I am sure more stocks in this sphere will join in the rally soon. Good luck


KS said...

dear alex
can we consider buying esso shell

or even petronas dagangan

hv a nice day

Alex Lu said...

Hi KS,

Petronas Dagangan ("Petdag") is into sales of petroleum products which is not likely to benefit significantly from the rise in crude oil. The only difference between Petdag and Esso & Shell is that the latter two companies are also involved in refinery in addition to the retailing of petroleum products. Does that make them better? I am not sure. We have to look at the crack spread and the cost of input (crude oil) and the selling price of gasoline & distillate. You may like to read some articles on crack spread (some links are given below).

KS said...

dear alex
thank you

JR said...

Dear Mr. Alex,

Will Kencana & Sap Crest follow suit ?

Apperciate your feedback.

Best Regards

pharmacyproduct2u said...

Mr Alex, can u simply explain how to get premium 10% for USO-C1?

Alex Lu said...

Hi JR,

Sapcres & Kencana has rallied very well in the past few weeks. They may challenge their July 2007 high of RM2.71 for Sapcres and RM3.00 for Kencana. I prefer the slower names, like Dialog which may do do some catching up.

Alex Lu said...

Hi pharmacyproduct2u,

The computation of the premium for USO-C1=

However, you need to convert the EP and SP to Malaysia Ringgit as follow:

EP = Exercise price
ER = Exercise ratio
CP = Price of Call Warrant
SP = Price of Underlying Security
XR = Exchange rate