Categories: Energy
Topics: General Energy

Investing in Commodities: Will Oil Reach $120 by December?

Although there have been numerous economic reports to derail oil (NYSE:USO), the black gold continues to hold firm. Last week, investors were reminded that the employment picture remains weak, as initial claims came in at 418k. Barclays Capital (NYSE:BCS) released a report that inflows into commodity markets fell sharply as the first half of 2011 ended. Furthermore, the IEA made it official that no more strategic reserves would be released at this time.  Although these developments might cause concerns for oil prices, shares in oil companies such as Chevron (NYSE:CVX) an Exxon Mobil (NYSE:XOM) rallied last week.

The chart below shows a possible reverse head and shoulders formation in oil, which would be bullish for the commodity. Aside from technical factors, there are hints of oil going higher according to option traders.

Oil has been holding steady near $100 per barrel, despite negative news.  Although a weak U.S. Dollar (NYSE:UUP) can boost oil prices, recent activity in options hint that traders may be expecting oil prices to head much higher.  According to bloomberg data, the number of contracts held by traders in options to buy West Texas Intermediate crude at $120 per barrel in December totaled 45,502 lots on the NYMEX as of July 21.  This was 4,226 lots more than the second highest bet, which is oil at $125.  Head of Regional Energy Research, Gordon Kwan says, ” We’re in a sweet spot.  Oil prices are well supported. It’s a very profitable for the energy secotr but not high enough to kill any economic growth.”

Investors looking to also profit in oil plays should consider ConocoPhilips (NYSE:COP), Marathon Oil (NYSE:MRO), or even Diamond Offshore Drilling (NYSE:DO).

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Disclosure: No positions.