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Longing Oil on Gustav Potential

Written By Brian Hicks

Posted August 26, 2008

Packing 90 mph winds, Hurricane Gustav is expected to make landfall in Haiti, and could eventually hit oil rigs and refineries in the Gulf of Mexico.  If it makes that move into the Gulf, we could be looking at a devastating Category 4 or 5 storm with the capability of severely disrupting oil supply.

You may remember that crude oil production plunged, as prices skyrocketed, when Katrina and Rita nailed refiners and platforms in the Gulf in August and September 2005.  Katrina shut down 95% of offshore output in the region. 

We’re already hearing that Royal Dutch Shell could start evacuating non-essential staff from the Gulf as early as Wednesday.

But there is a way to profit from it.

On news of the hurricane and on oversold conditions, we believe natural gas has bottomed, and setting up for reversal. The trading rule of thumb with natural gas is to buy in March, and sell at the end of July. Then, buy in August and September, and sell at the end of December.

So we’re buying now.

UNG, for instance, is technically extremely oversold based on MACD, which bottomed out and is showing signs of reversal.