Options Trading Research Report Highlights: Has The US Moved On From Oil?

By Gordon Lewis

Of all the interesting developments in the commodities world this year, perhaps nothing is more surprising than the slow but steady selloff in crude oil. However, it’s not the selloff itself that’s so surprising – it’s the reasons why.

After all, the price of crude was sitting around $110 per barrel for several weeks. Hotspots of conflict in the Middle East were the catalyst driving the price higher. And, it was inevitable oil would see some sort of selloff as the Middle Eastern situations settled down.

Nevertheless, the crude has kept on falling, and is now under $95 a barrel. If it breaks this current support level, the price of oil may very well drop to below $90.

So why has the crude selloff persisted?

Certainly one aspect of the drop is supply related. Crude oil inventory has generally been much higher than expected, for various reasons.

Here’s the thing…

The financial media likes to focus on supply when it comes to the price of oil, but I believe demand is too often glossed over.

You typically only hear about demand in regard to economic growth. That is, if the economy is slowing, demand will also slow for oil. Or maybe there will be a blurb about high gas prices keeping consumers away from the pump.

But I believe demand (consumption) is a greater factor than many truly realize. In fact, it’s my opinion that the US may be moving on from oil – for good.

You see, there are a couple of major factors leading to a reduction of oil/gasoline consumption. One is definitely the emergence of natural gas. Not only is natural gas considerably cheaper than oil, it’s abundant and is produced domestically.

We’re seeing a major shift towards natural gas fuel as trucks and municipals vehicles (such as buses) switch over. That’s a trend which will only continue as technology improves and the natural gas infrastructure becomes more developed.

And that’s not all…

Vehicles are becoming vastly more fuel efficient. It’s not just hybrid and electric cars (although those are very popular). Almost all new cars these days are significantly more fuel efficient than their predecessors.

That fact is, Americans need less gas. And, the lower consumption is driving the price of oil down.

Now, I personally would love to see oil go away entirely as a fuel. It’s dirty and expensive. But, we just aren’t there yet. There are still many reasons why oil will be a factor for years to come – not the least of them, demand from emerging markets.

As such, there’s a floor to how far the price of oil can fall.

In a case such as this, selling puts is an excellent strategy to use. Pick a strike you believe provides strong support, and then sell puts or put spreads at that strike. It could be a good way to earn extra income without taking a strong directional stance on the price of oil.

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