Commodities on a run: How to play Crude Oil

Commodities are on a run with Cocoa Futures (CC=F) topping $8,000 per metric ton and Copper Futures (HG=F) hitting its highest level in almost a year. Oil prices (BZ=F, CL=F) have also been rising this week, at one point topping over $80 per barrel.

Path Trading Partners Co-Founder Bob Iaccino and Blue Line Futures Chief Market Strategist Phillip Streible join Yahoo Finance to discuss how investors should position themselves within the commodity sector.

Streible states that oil's rise is a simple function of supply and demand, highlighting a few demand-side drivers: "Resiliency of the US economy has helped to support demand. We've got driving season right here. Any kind of interest rate cut could really be a tailwind for the crude oil market. If you get some of this loan, some of this debt burden behind us with lower interest rates, people are gonna have more money to spend and they're probably going to do it the easiest way, which is travel. So we are starting to see 2024 demand increasing. And we could see upward revisions in '25 and 2026."

Investors may look to the futures market or to ETFs to join the oil rally, Iaccino explains: "I always advise people the thing that's 100% correlated to crude oil is crude oil. So the best place...to play that out is WTI crude (MCL=F), that's my favorite. But, for the average investor, you can look at USO, that's one of the ETFs people generally default to."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video transcript

- Well, with less than 15 minutes left until the closing bell on Wall Street, we're looking at how to navigate the big picture with the Yahoo Finance playbook. Some of the biggest moves in the market this week have been in the commodities space. Cocoa prices extending their record run, topping $8,000 per metric ton.

And checking on the metals as well, copper hitting its highest level in nearly a year. And also there's oil. Let's mention that as well because it's closing up more than 3% this week, despite edging a little bit lower today.

Joining us now to break it all down, Blue Line Futures Chief Market Strategist Phil Streible and Path Trading Partners Co-founder and Chief Market Strategist Bob Iaccino. Guys, it's great to see you. Thanks so much for being here.

PHILLIP STREIBLE: Good to see you, Julie.

- So, obviously, there's a lot of commodities out there. We've been seeing a lot of action. So if you're an investor and you want to get involved here, you know, it's kind of a tricky thing to try to figure out. Bob, I want to start with you. Is there anything that can be said about commodities sort of writ large? Or do we really need to drill down and talk about each one individually?

BOB IACCINO: Well, I think individual is valuable. And Phil is really good at that. But I just-- on a broader sense, you are talking about something that is really a pure supply and demand story. And I think that escapes a lot of people.

You're not going to have CEOs scandals with commodities. You're not going to have missed earnings with commodities. You're talking about how much is out there, what does the supply picture look like, and what does the demand picture look like. And that's all it is.

Now while it can get complex with different sort of geopolitical volatilities, especially in the place of crude oil-- we're talking about crude oil. That comes into play quite a bit-- inflation with gold, interest rates with some of the metals including copper. The bigger picture is supply and demand-- how much does there, and who wants to buy it?

- So, Phil, let's bring you in here too and dig deeper into a few different areas. Walk me through, I guess to start, how you're thinking about the energy complex, Phil, and oil in particular here, highest level here since November. What's driving that, Phil? And what do you see ahead?

PHILLIP STREIBLE: Yeah, so building out what Bob brought up-- and it's a great point here. You look at crude oil. You look at the demand. And the resiliency of the US economy has helped support the demand. We've got driving season right here.

And any kind of interest rate cut could really be a tailwind for the crude oil market. If you get some of this loan, some of this debt burden behind us with lower interest rates, people are going to have more money to spend. And they're probably going to do it the easiest way, which is travel.

So we're starting to see 2024 demand increasing. And we could see upward revisions in '25 and 2026. You look at the supply side of things. We saw Ukrainian drone attacks on Russian refineries that could impact some of the Russian exports. We've also seen surprise drawdowns in the IEA inventories of 1.5 million barrels this week, taking the yearly decline down to 33 million barrels.

So you look at the bigger picture things. Like on the supply side, inventories are sitting at 446 million barrels versus the five-year average of 528. So one other thing that Bob didn't bring up was price momentum that also plays a big role. And you want to see those prices really moving in the direction that outlines and maps with the supply and demand picture. And crude oil prices look like they can go up to about $85 right now.

- So, Bob, do you agree-- I understand, you're a long whale. And I would ask--

BOB IACCINO: Yup.

- --where you're expecting it to go and also how you think the best way is for people to play. I mean, you're a sophisticated investor in this stuff, right? So you're probably looking at crude oil futures, et cetera.

BOB IACCINO: Yes.

- For normal investors, should they be looking at ETFs? Should they go to the futures market? What's best?

BOB IACCINO: Well, I always advise people that, you know, the thing that's 100% correlated to crude oil is crude oil. So the best place to play with that-- or play that out, I should say-- we don't play in investing-- is WTI crude. That's my favorite.

But for the average investor, you can look at USO. That's one of the ETFs people just generally default to. And for example, looking at [INAUDIBLE] newsfeed, which is a new product from them, I'm seeing that USO is projected to be lower than their average daily volume. But the activity is on the call side of things.

So to Phil's point about price momentum-- and he's right. I did leave that out. And it's very important-- my target on this was 82.50. Phil says 85. So I'm probably going to move it up to 85 now on the WTI. But the USO thing is very important because your average investor is looking at that. When the activity is to the call side, that means the market makers are going to be slowly buying up the USO if the volatility rises.

One thing about crude oil, volatility in the equity markets, we generally associate that with a down move. Volatility in something like crude could go either way. And a spike in volatility, in which case the calls would be active then, could come on an up move. And generally it does because we get a big supply disruption, like Phil mentioned, attacks on oil producers. That can cause supply disruptions and bring about volatility.