Profiting from Pain at the Pump
The spike in oil is pushing gasoline prices to record highs for this time of year, forcing Americans to dig deeper into their pockets.
Nationwide, a gallon of regular costs an average of $3.61, more than 13% higher compared with one year ago. Prices are expected to climb, as some analysts predict the national average to break $4 per gallon this spring.
But some sectors in the market are profiting off America’s pain at the pump, and the rising price of oil is sparking a rally in energy sector ETFs. Energy Select Sector SPDR [XLE] is up 9.29% so far this year, and nearly 29% since oil’s October low. IShares DJ U.S. Oil & Gas Ex Index [IEO], which is primarily focused on the production and exploration of oil and natural gas, is also getting a strong start, up 14.98% year-to-date.
Iran’s decision to halt oil shipments to French and British companies helped spooked global markets, driving the price of oil and gas.
“The threat of supply cuts from the Middle East is boosting the price of oil,” says Darin Newsom, Telvent DTN Senior Analyst. “And an anticipated demand spike from Greece’s second bailout is pushing prices higher.”
The U.S. Gasoline Fund [UGA], which tracks the price performance of future crude oil contacts, is up nearly 16% year-to-date.
Of course, ETFs mirroring the price of oil and gas is not the only way to capitalize on climbing prices. According to one analyst, refining stocks are positioned for the greatest growth.
“Higher oil prices mean more investors are bullish,” said Fadel Gheit, Oppenheimer and Co. managing director and senior oil and gas analyst. “The biggest gainers are refining companies like Valero (NYSE:VLO) and Tesoro (NYSE:TSO).”
Shares of Valero and Tesoro are up approximately 48% and 57% since October, as both companies take advantage of global market demand.
“The changes in regulation are benefiting U.S. refiners,” said Gheit. “For the first time, the U.S. is exporting more gasoline than its importing. The U.S. has an advantage, and all the money is in the pocket of the U.S. refining companies.”
So just how high will prices climb? Newsom does not expect the national average of a gallon of gasoline to hit $5. “Four years ago we got into the low $4 range, and right now it doesn’t seem like we’ll go beyond 2008’s peak,” said Newsom. “Without a chaotic event, I see prices staying around $4 per gallon, with a year high of about $4.10.”