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: Stockcharts.com)

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: Stockcharts.com)

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
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7 comments:

  1. KSFriday, October 16, 2009 10:15:00 AM

    dear alex
    goodmorning
    can we consider buying esso shell

    or even petronas dagangan

    hv a nice day
    rgds

    ReplyDelete
  2. Alex LuFriday, October 16, 2009 2:05:00 PM

    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).

    http://en.wikipedia.org/wiki/Crack_spread

    http://www.dailymarkets.com/stocks/2009/04/13/at-the-crackspread-of-a-new-dawn-the-rise-of-the-refiners/

    ReplyDelete
  3. KSFriday, October 16, 2009 3:01:00 PM

    dear alex
    thank you

    ReplyDelete
  4. JRFriday, October 16, 2009 4:54:00 PM

    Dear Mr. Alex,

    Will Kencana & Sap Crest follow suit ?

    Apperciate your feedback.

    Best Regards

    ReplyDelete
  5. pharmacyproduct2uSaturday, October 17, 2009 6:25:00 PM

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

    ReplyDelete
  6. Alex LuTuesday, October 20, 2009 8:46:00 AM

    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.

    ReplyDelete
  7. Alex LuTuesday, October 20, 2009 8:59:00 AM

    Hi pharmacyproduct2u,

    The computation of the premium for USO-C1=
    [EP+(CP*ER)-SP]/(SP)*100

    However, you need to convert the EP and SP to Malaysia Ringgit as follow:
    [(EP*XR)+(CP*ER)-(SP*XR)]/(SP*XR)*100

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

    ReplyDelete