Oil Reserve Release is the Real QE3

Having run out of tolerable ways to stimulate the economy, the civilized world has turned to what might be its last, best chance of shocking the economy back to life: reducing oil prices by releasing strategic reserves of oil. It certainly works in theory. High oil prices drag down the economy. While prices have been dropping in concert with a slipping economy, any signs of reheating in the economy drives oil prices north, outpacing the gains and triggering another mini-slide in the economy. Additional supply, both from Saudi output and this strategic release, could keep the speculators at bay long enough to let the economy build some momentum before oil prices can push back. Will the move work? Maybe. "I think the IEA is trying to act like a central bank. I suspect they are thinking they need to hold less oil in storage right now, but the risk here I think is oversupply. With the IEA dumping 2 million barrels a day onto the market I don't think anyone will be comfortable being long oil. I think U.S. oil prices will trade in the $85 to $92 a dollar range going forward. We may see oil trading in the $80s very soon," said Dominick Chirichella of the Energy Management Institute. "I see oil demand underperforming a lot of the estimates out there since the economy seems to be going south. Bernanke's speech was bearish yesterday about the US economy, and there's no Fed solution left; the Bernanke put is gone now. Chinese PMI data overnight was negative; manufacturing is slowing; Europe is a mess and Greece could be a disaster for Europe's banks," Chirichella continued. If traders are unwilling to be long on oil, as Chirichella suggests, this could be tremendous for the economy. Traders have been going long on the premise that oil prices would stay high and rise even higher. If they're not willing to put money on that premise, we might see a self-fulfilling effect, and oil prices could stay lower. When oil prices stay low, they give the rest of the economy a fighting chance to break through the unemployment and hiring plateaus we've been at for what seems like an eternity. If this holds, this opens up some interesting trading ideas. Action Items Bullish: Traders who believe that the oil release will drop oil prices and boost the economy might want to consider the following trades:

• Delta Air Lines DAL and Southwest Airlines LUV are two of the several airline stocks that could skyrocket if oil stays low. Lower oil prices, especially over the long term, are extremely beneficial to airlines, who have to price in large quantities of jet fuel into their expenses.
• SPDR S&P 500 ETF SPY This investment correlates with the overall market, making it a reasonable play for those who see the market rising in the coming months.

Bearish: Traders who believe that any drop in oil prices will be absorbed and soon forgotten may consider taking positions in the following:

• SPDR Gold Trust ETF GLD If the economy keeps on trucking toward craptown, gold might be the only investment worth owning. OK, that's an overstatement — there is also silver SLV. Joking aside, gold could be the safety play for a doomed economy.
• iPath S&P GSCI Crude Oil Total Return OIL is an ETF that could pay off, if oil in fact rises again. With everyone seeming to ditch oil, bears could see a buying opportunity here.

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