How to Trade Severely Oversold Oil Prices

by | May 3, 2023 | Markets

Oil just crashed below $70 again.

In fact, last checked, crude was down another $3.04 to $68.62. Analysts noted the current crash mirrors the decline we saw in March, when the banking crisis began. That, coupled with growing fears of a recession and the risk of soft Chinese demand are massive overhangs.

While the news is chasing investors from oil trades, it may be a good idea to start accumulating oil stocks, like Exxon Mobil and Chevron, and even top oil ETFs. For one, fear is way out of control. And as we’ve learned from Warren Buffett, that’s where you want to start buying.

Two, oil is technically stretched. If you pull up a two-year chart of crude, every time oil gets this oversold, it bounces back shortly after. Plus, deeply oversold RSI and W%R indicators can pinpoint potential reversals. Even Goldman Sachs just said “RSI has been a good indicator of entry points on the previous sell-offs, and ‘we are getting closer’ to where the CTAs (Commodity Trading Advisors) get squeeze again: after all, as shown below, the 7-day RSI in oil as now approaching record lows!”

If we are nearing a pivot point for oil, some of the best opportunities can be found in Exxon Mobil, Chevron, Occidental, and other oil names. Or, you can always accumulate energy ETFs, such as:

SPDR Energy Select Sector ETF (XLE)

With an expense ratio of 0.12%, the XLE ETF provides exposure to companies in the oil, gas and consumable fuel, energy equipment and services industries, as noted by State Street SPDR. Not only does an ETF allow for diversification, you can buy it for less.

SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

With an expense ratio of 0.35%, the ETF provides exposure to the oil and gas exploration and production segment of the S&P TMI, which comprises the following sub-industries: Integrated Oil & Gas, Oil & Gas Exploration & Production, and Oil & Gas Refining & Marketing, as noted by State Street SPDR. Some of its top holdings include Callon Petroleum, SM Energy Company, Devon Energy Corporation, EOG Resources, and ConocoPhillips, for example.

iShares Global Energy ETF (IXC)

The iShares Global Energy ETF seeks to track the investment results of an index composed of global equities in the energy sector. Some of its top holdings include Exxon Mobil, Chevron Corporation, BP PLC, Total SA, and EOG Resources.