Oil is showing a bullish sign

I was bearish about oil in the past few months. Over a week ago when I talked to my friend about my opinion on oil, I said I was not convinced that oil had recovered from this correction. I thought it could go down to low $70s before it was over. It appears I was wrong.

Today, China has reported a much better than estimated PMI, an index reflecting manufacturing activities. In the past months, the overall sentiment about China has been very downbeat. People were really worried about a hard landing or a crash about the China's economy, which would obviously terrible for the whole world. Today's PMI data gave a big relief for the whole world and this has translated into a big push for the oil market. There was a strong resistance at around $90.96 for crude oil. Today oil has jumped almost $4 to break through this resistance, finishing with over $91. This is a very bullish sign and if maintained it will mean a renewed uptrend for crude oil. When the facts change, I change my mind. With this new important data from China, together with the bullish season for a year-end rally for the general market, I also think now there is a good chance that the crude oil may continue to appreciate over the next few months, probably to over $100.

If this is indeed the trend, oil companies will certainly benefit. I like well managed oil companies such as Exxon Mobil (XOM), Chevron (CVX) and BP. All the three also paid good dividends. But  be aware that all of them have climbed up over 15% in the past month. Not necessarily cheap enough at these levels, especially for XOM and CVX. You may also consider to directly trade via US Oil Fund (USO), an ETF to track crude oil prices. It is the most actively traded oil ETF. But I think it will be taxed as a limited partnership, for which you will need to report K-1 form. I don't like this as it is cumbersome and maybe complicated for non- accountants. Actually many ETFs are subject to K-1. So be aware of this and it is always better to check their Prospectus to see their tax reporting requirements. This is one main reason that I always try to use options as far as possible for ETFs to avoid this kind of headache.