I want to get long oil but thru options. Since I can't buy options on USO and XLE/OIH really doesn't track the price of oil that well, I'm wondering if there is an energy company you guys are aware of that does closely follow the price of oil?
Look at any oil related stock. You will find that most of them had started selling off well before the New Year when oil tanked. From reading some of the posts on this website and others, many were surprised that oil and oil service stocks are rallying right now. The simple answer is that the investors expect oil to rise in approximately 1 month. The folks that invest in oil related stocks are very sophisticated. They have satellites in the sky tracking tankers, they hire accuweather for scientific weather predictions, etc. If you see the OIH bottoming on a chart, then you know that oil will rise in 1 month or so. If you see the OIH starting to fall, then its time to devest yourself of these oil stocks and wait for the magic panic sell-off to stake a long position. The following chart demonstrates my thesis. As you can see, the oil service stocks started to sell-off in mid-December. http://stockcharts.com/h-sc/ui?s=OIH&p=W&b=9&g=0&id=p85055592404 So to answer your question, most of the oil stocks do not follow the price of oil directly. Instead, they follow what they believe the future price of oil to be... Dr. Michael Roberts www.marketbarometer.blogspot.com
then how come OIH rallied from early OCT 06 to mid DEC 06 with crude oil prices trading in a range at that time ?
The election in November. The common thinking was that Republicans were manipulating the price of oil. There was some basis in fact for this thinking. However, this proved to be a false premise and soon the facts became clear such as warmer weather and tanker runs that demonstrated OPEC is overproduction. The smart money entered the trade a month before the elections and exited about a week or so afterwards. The rumor of manipulation soon wore off and then reality set-in... Dr. Michael Roberts www.marketbarometer.blogspot.com
This site gives correlation for stocks. Didn't have uso though. John' http://www.spdrindex.com/correlation/
I wouldn't worry too much about non-correlation between XLE and crude for this trade. If crude moves up from this point, oil stocks are very likely to be moving in the same direction. Perhaps you might look at a stock such as MRO, which has been an outperformer with a nice dose of volatility. Concurrently, over the past year, it exhibits one of the highest correlations with XLE in this sector. Here's a graph of MRO vs. XLE: http://finance.yahoo.com/q/bc?t=1y&s=MRO&l=on&z=m&q=l&c=xle
Better yet, just trade the USO. This ETF reflecting the real-time trading price of oil had lousy volume and huge spreads until last month. Since then however, volume has more than tripled and the spreads have made entry and exits relatively painless.