Oil Heading Higher in 2012

These are the beginnings of a concerted supply squeeze. If you add any disruptions in 2012, either from Iranian sabre-rattling in the Straits of Hormuz, from a collapse of a newly U.S.-free Iraqi infrastructure, from a hiccup from newly instituted Libyan oil company, or from a host of other issues neither you or I could possibly plan on and you've got a streaking price for oil -- perhaps approaching the all-time highs we saw in 2008 of $147 a barrel.

There will be further upwards price pressure from investors looking to cycle back into commodities, and particularly oil after the start of the New Year. Outflows have been the theme of the last two quarters, both in equities as well as commodities. But as confidence in the markets continues to increase, so will the risk appetites of investors. I expect a good portion of that appetite to turn to oil.

There are lots of ways to play this, but perhaps the simplest is with the two largest energy ETF's, the Energy Select Sector SPDR ETF (XLE) and the Market Vectors Oil Services ETF (OIH). Both of these provide super liquid and sector wide exposure to both mega cap energy companies and oil services companies. Both sectors will greatly benefit and rally strongly as oil begins to.

2012 looks to be another strong year for energy.

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