Thanks to a relatively strong dollar and weak economic growth
levels around the world, many energy commodities have been under
pressure as of late. Oil, for example, was once routinely above
$100/bbl. but is now struggling to maintain its momentum above the
$90/bbl. mark.
However, while the situation has been dire as of late, a
marginally better economic outlook and some Middle East tensions
have once again pushed energy prices higher. Furthermore on the
home front, increased demand for natural gas has also helped to
spur that commodity out of the doldrums, although long term
pictures for the product still aren’t very pretty.
Yet, while all energy products have come back in the summer
months, the real winner has been in the world of gasoline, as
represented by the United States Gasoline Fund
(UGA). This product looks to track the percentage changes
in the spot price of RBOB gasoline as traded on the NYMEX (see Time
to Buy Oil and Gas Services ETFs?).
This product has handily outperformed the other oil-based ETFs
in the segment, gaining about 8.7% in the past three months
compared to just a 1.9% gain for Brent Oil (BNO)
and a 4.4% loss for WTI crude, as represented by
USO.
This is somewhat curious, as gasoline is a by-product of crude
oil, as for every three refined crude oil barrels, two barrels of
gasoline can be produced. With this relationship, one would assume
that UGA would be moving in lockstep with its oil counterparts,
although this has obviously note been the case as of late.
Instead, some key changes to the gasoline refining market have
helped the commodity to outperform its peers in the most recent
three month period by a pretty wide margin.
First, investors saw a few major pipelines rupture or see other
problems across the Midwest, curtailing supply in the region. Then,
a major fire at a refinery in California also helped to reduce
refining capacity, making gasoline somewhat harder to come by in
the short term (read Play an Oil Bull with These Three Emerging
Market ETFs).
Investors should also note that some Mideast tensions could also
be playing a role in the spike in gasoline prices as of late,
especially in regards to Iran. Currently, the nation is the fourth
biggest producer of oil and is situated atop the Strait of Hormuz,
a crucial oil gateway.
There have been some concerns over an increase in both the
rhetoric and military presence by America and Iran in this
waterway, which could be acting as a risk premium for oil and
gasoline in the near term (see Three ETFs for an Iranian
Crisis).
With this being said investors should note that ethanol, while a
big contributor to gasoline’s rise at the pump, is probably not a
big factor for the fuel’s surge in commodity contract form. That is
because UGA tracks a benchmark that is purely RBOB gasoline, in
other words, before the addition of increasingly expensive
ethanol.
This means that the increased price at the pump could deviate
from returns in gasoline futures since, for the most part, gasoline
at the pump must have at least 10% ethanol. Due to this difference,
investors should probably try to put end use prices out of their
mind, at least when dealing with UGA.
Instead, investors need to focus in on the futures curve and the
situation of ‘backwardation’. This is when futures contracts that
are further out are less expensive than current contracts, making
the roll process that much easier on investors’ bottom lines.
This is especially important for UGA as the product rolls over
into a new contract every month, meaning that, when in
backwardation, it is buying a lower priced contract every time.
This can translate into huge gains, and the opposite situation,
contango, has plagued many energy commodities for at least the past
few years (read Forget WTI, Play Crude with This Oil ETF).
In fact, many other energy products, such as crude oil, heating
oil, and natural gas, are all in contango at time of writing. This
means that products tracking these commodities will have to roll
into more expensive contracts on a monthly basis, potentially
hampering any return that these funds can generate.
Due to this issue of contango/backwardation as well as the
ongoing geopolitical problems and refinery issues, there still
could be some room left for UGA to run. This could be especially
true when comparing the commodity against the other energy products
in the ETF world, suggesting that at the very least, a pairs trade
in which one goes long UGA and short a crude oil ETF, could be an
interesting way to play the market (see Three ETFs for The
Unconventional Oil Revolution).
However, this is probably only a short term trade as
backwardation and the refining problems cannot last forever. Still,
while these issues are present and before refiners cycle over to
cheaper blends in the fall, a closer look at UGA could be warranted
by short-term traders looking to make a play on the energy
market.
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30
Days. Click to get this free report >>
Follow @Eric Dutram on Twitter
US BRENT OIL FD (BNO): ETF Research Reports
US GAS FUND LP (UGA): ETF Research Reports
US-NATRL GAS FD (UNG): ETF Research Reports
US-OIL FUND LP (USO): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days. Click
to get this free report
United States Gasoline (AMEX:UGA)
Gráfica de Acción Histórica
De Abr 2024 a May 2024
United States Gasoline (AMEX:UGA)
Gráfica de Acción Histórica
De May 2023 a May 2024