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
Caesars must face $11 billion in lawsuits: U.S. judge
Caesars Entertainment Corp must face lawsuits from bondholders seeking some $11 billion in claims, a U.S. judge ruled on Friday in a decision the casino company had warned could plunge it into bankruptcy alongside its operating unit. Caesars Entertainment Operating Co (CEOC), which filed for Chapter 11 protection in January 2015, was asking for a third court shield from lawsuits against its parent to protect a multibillion-dollar contribution to its reorganization plan. The high-stakes CEOC bankruptcy has been plagued by a complex web of litigation pitting some of the most aggressive investors on Wall Street against each other.
Judge blocks N.C.'s transgender bathroom law
Wall Street slips in wake of comments by top Fed officials
U.S. stocks ended modestly lower after a volatile session on Friday, having bounced between gains and losses as investors wrestled with the likely timing of a U.S. interest rate hike following comments from top Federal Reserve officials. The S&P 500 rose after Fed Chair Janet Yellen said the case for raising rates had strengthened but did not indicate when the Fed would act. Yellen told a gathering of central bankers from around the world in Jackson Hole, Wyoming, the U.S. economy was nearing the central bank’s goals of maximum employment and price stability but that future hikes should be “gradual”.
Kaine channels Bill Clinton on 'Late Show'
Maine governor to lawmaker: ‘I am after you’
Clinton’s Coziness With Silicon Valley: More Troubling Than Her Wall Street Ties
The wealth of Hollywood has historically been a magnet for Democratic politicians, and it remains so; Hillary Clinton spent two days draining the pocketbooks of Justin Timberlake and other luminaries this ...
Most Asian markets lose ground ahead of speech by Fed's Janet Yellen
While most Asian stock market indices were trading lower on Friday (26 August), the Shanghai Composite was up 0.19% at 3,074.28 as of 6.01am GMT. The general bearish trend in Asia reflected nervousness among traders ahead of Fed Chair Janet Yellen's speech scheduled for Friday, 26 August.
Immigration hardliner's warning for Trump
Sibanye Gold H1 earnings surge, focus on safety
South African-focused bullion and platinum producer Sibanye Gold posted a six-fold surge in interim earnings on Thursday on a sharply higher rand-gold price and said it was refocusing on safety after a spike in fatalities. The company said it had appointed veteran executive Peter Turner to head up safety for the group. Safety has been back in the spotlight in South Africa, home to the world's deepest mines, after an increase in fatalities across the industry this year after the death toll had fallen for seven consecutive years.
- Honoring working dogs on National Dog Day