As I look back on the first quarter of 2012, one of the most glaring events was the rise in gas prices here in the U.S. Wholesale gasoline began the year at $2.66/gallon on the NYMEX, and closed last Friday at $3.33, a gain of 67 cents ... a jaw-dropping 25 percent.
The reasons for the increased gas prices are varied. Generally speaking, though, they've risen because oil prices have risen. I know that might sound obvious. But I'm not talking about the oil prices we follow in the U.S., which is known as West Texas Intermediate (WTI).
Instead, I'm talking about what has replaced WTI as the global benchmark of oil: Brent crude.
Brent crude rose from $109/barrel (bbl) to over $125/bbl in the first quarter on reduced supply coming out of the Middle East and on concern regarding potential military conflict between Israel and Iran.
In addition to the general rise in oil prices, we have seen a widening of the difference, or spread, between WTI and Brent crude prices. That spread has increased from about $9 at the beginning of the year to over $19 as of Monday morning. And this has created a very unique opportunity for refining companies in the central U.S.
You see, those refiners have the ability to buy crude oil at the WTI price, then refine it and sell gasoline based on the Brent crude price ... which is over $120/bbl.
These market dynamics have occurred because of global unrest in the Middle East — not because oil company executives are greedy. So when the media, or anyone else, tries to vilify them, don't believe it. The truth is prices are just reacting to the market in which they exist.
Now the reason there is such a large spread between WTI crude and Brent crude is mainly because the WTI crude we produce here in the Baaken Shale and middle of the country is "trapped" since there are very few pipelines that can transport it to the Gulf of Mexico for export.
But That Will Be Changing ...
|Companies dedicated to moving oil across the U.S. then on to foreign ports are sure to prosper from the additional flow.|
The integral Seaway Pipeline, which carries crude oil from the Gulf of Mexico to Cushing, Oklahoma, is going to be reversed. It will then carry oil from Cushing, Oklahoma to the Gulf of Mexico to be exported. In addition, other pipeline companies have discussed switching the direction of their pipelines to help relive the glut of WTI crude oil sitting in the U.S.
One potential way you could profit from this trend is by purchasing shares in master limited partnerships (MLPs) that make money as crude oil is transferred through their pipelines. Additionally, oil tanker companies will benefit from this increased export as well.
Two ways to play that:
First, is the Alerian MLP ETF (AMLP), which owns shares in infrastructure-related MLPs.
And the second, to a lesser extent, is the Claymore/Delta Global Shipping ETF (SEA), which owns shares in a tanker companies.
As a savvy contrarian investor, you must constantly be searching for opportunities in unique events. Indeed, the very wide WTI/Brent spread is one of those events. And as that spread narrows, there will potentially be multiple opportunities to profit with MLPs and tanker companies, which could leave you smiling the next time you fill up.
|< Prev||Next >|
Current Headlines - Finance
Three people dead in possible Molotov cocktail attack in California
(Reuters) - Three people were found dead inside a Los Angeles-area business on Saturday in what might have been a fire bomb or Molotov cocktail attack, law enforcement said. One victim was alive but covered in flames when firefighters arrived at the early morning blaze in the city of El Monte, east of downtown Los Angeles, said Los Angeles County Sheriff's Department spokeswoman Grace Medrano. The sheriff's office did not release the name of the business, but the Los Angeles Times said it was a tire shop. A witness who called 911 told authorities he saw several suspects throw a Molotov cocktail at the business before driving away, Medrano said.
A dozen arrested as Freddie Gray protests turn violent
Pockets of violence erupt in Baltimore after march to protest black man's death
By Lacey Johnson BALTIMORE (Reuters) - Thousands of people marched through downtown Baltimore on Saturday to protest the unexplained death of a black man in police custody but the demonstrations turned violent when some protesters threw metal objects at officers and broke windows. Saturday's protests began peacefully, with at least 2,000 demonstrators marching to City Hall for a rally, the biggest since 25-year-old Freddie Gray died six days ago, a week after his arrest. Mayor Stephanie Rawlings-Blake said the overwhelming majority of the protesters were peaceful but that agitators disrupted the demonstration. “After a week of peaceful demonstrations I am profoundly disappointed to see the violence in our city this evening,” Rawlings-Blake said at a news conference.
Russian hackers read Obama's unclassified emails last year: NYT
Russian hackers who penetrated sensitive parts of the White House computer system last year read President Barack Obama's unclassified emails, the New York Times reported on Saturday, quoting U.S. officials. "There is no evidence that the president's email account itself was hacked, White House officials said. Still, the fact that some of Mr. Obama's communications were among those retrieved by hackers has been one of the most closely held findings of the inquiry," the paper said. A White House spokeswoman declined to comment on the report but the White House earlier this month confirmed the breach, saying it took place last year and that it did not affect classified information.
Factbox - Deutsche Bank's puzzle pieces for restructuring
Deutsche Bank faces a tough task as it aims to pare its investment banking, dump its Postbank retail chain and slash costs in a restructuring plan designed to restore profitability. POSTBANK RETAIL NETWORK The ubiquitous retail chain serves 14 million clients from 1,100 branches integrated into the postal system. Deutsche bought Postbank for around 6 billion euros ($6.5 billion) in steps starting in 2008 and now holds 94 percent of the firm. Deutsche wants to cut its stake to below 50 percent, and trade union Verdi has said the sale will take place on the stock market.
U.S. regulator says 'flash crash' manipulation hard to detect
By Suzanne Barlyn CHICAGO (Reuters) - The type of alleged market manipulation by the British trader accused of helping provoke the "flash crash" in 2010 is hard to detect, the chief of the Financial Industry Regulatory Authority said on Friday. Nonetheless, the alleged abuses were "somewhat surprising" given that his behavior was identified in 2009 but continued for another five years, said Richard Ketchum, chairman and chief executive of FINRA, a self-funded regulator for Wall Street. "I won't second guess what happened at the MERC without understanding the facts themselves," said Ketchum, referring to the Chicago Mercantile Exchange, the market that Navinder Singh Sarao has been accused of manipulating from his home outside London.
Deutsche Bank to split off Postbank via stock market - trade union
FRANKFURT (Reuters) - German trade union Verdi on Friday said that Deutsche Bank management has chosen to split off its Postbank division via the stock market. "The management board of Deutsche Bank chose the model where Postbank will be split off through a stock market flotation," Verdi said in a statement following an official Deutsche announcement about its new strategy. (Reporting by Thomas Atkins; Editing by Maria Sheahan)
Insight - Flash crash charges garner increasing skepticism in high-speed world
By Douwe Miedema WASHINGTON (Reuters) - The notion that one man trading from his parents' house in a working class London suburb had a material role in the 2010 Wall Street flash crash has aroused increasing skepticism from investors and traders since charges were brought on Tuesday. The U.S. has asked UK authorities to hand over Navinder Singh Sarao, 36, after his arrest this week on charges that he manipulated markets over several years in a fraudulent scheme that helped cause the stock market rout. The U.S. Department of Justice alleges that Sarao used souped-up, off-the-shelf software to trick other market participants into thinking massive sell orders were about to hit, causing the so-called E-mini S&P futures prices to drop so he could buy at cheaper levels. The charges against Sarao, operating far from the centre of U.S. markets and engaging in activity some believe occurs every day among larger firms, show that regulators may not shy away from publicity, even if their case may be legally solid. Linking Sarao to the flash crash "smacks of sensationalism," said Manoj Narang, founder of Tradeworx, a firm that supplies data for regulators.
Flash crash charges garner increasing skepticism in high-speed world
The U.S. has asked UK authorities to hand over Navinder Singh Sarao, 36, after his arrest this week on charges that he manipulated markets over several years in a fraudulent scheme that helped cause the stock market rout. The U.S. Department of Justice alleges that Sarao used souped-up, off-the-shelf software to trick other market participants into thinking massive sell orders were about to hit, causing the so-called E-mini S&P futures prices to drop so he could buy at cheaper levels. Linking Sarao to the flash crash "smacks of sensationalism," said Manoj Narang, founder of Tradeworx, a firm that supplies data for regulators. So far, at least 194 people have signed up to an online message saying "One man with a single broadband connection cannot bring down an entire market." Sarao, who court documents show pushed around millions of dollars between banks in the Caribbean, Switzerland and the Middle East, has been granted bail in London on conditions including a 5 million-pound ($7.5 million) bond. His lawyer, Joel Smith, declined to comment on whether Sarao had yet raised the bail and been released, but said he opposes extradition to the United States. CANCEL IF CLOSE The view held by some in the market that Sarao is a scapegoat for the flash crash may not help his case much.
Photos from red carpet at White House Correspondents' Dinner