As Karim Rahemtulla recently pointed out, U.S. gasoline prices are moving relentlessly higher.
In fact, prices at the pump are up about 5% compared to last year, even with ample domestic oil supplies.
As Karim said, much of the blame lies with Vladimir Putin and his geopolitical games in Ukraine, which are affecting the price of oil (as well as oil products)…
But there’s another factor at play that could push the price of gasoline even higher.
I’m talking about U.S. gasoline exports.
Exports Increase Rapidly While Inventories Dwindle
In effect, the U.S. gasoline market has now been globalized.
U.S. gasoline exports took off after pipelines began moving oil from the hub in Cushing, Oklahoma to refineries on the Gulf Coast. That enabled refineries to produce lots of gasoline, which has found a ready market in places like Latin America.
Previously, between 1995 and 2009, only 100,000 to 200,000 barrels per day (bpd) were exported. But by January of 2014, that figure had climbed to 529,000 bpd.
And even though there’s still gasoline being imported on the East Coast, research firm ESAI Energy forecasts that the United States will become a net gasoline exporter by 2015.
Tack on lower inventories – thanks to the harsh winter season – and it’s not surprising that gasoline futures have risen roughly 10% already in 2014… or that retail gasoline prices are at a 13-month high.
Now, the bad news is that readers should expect this trend to continue for the foreseeable future.
But the good news is that there’s a direct way to benefit from the rising price of gasoline… so don’t despair every time you go to the pump.
You see, there’s an exchange-traded fund (ETF) available on the NYSE Arca called the United States Gasoline Fund (UGA).
It’s a pure-play on the price of gasoline and is designed to track, in percentage terms, the movements of gasoline prices.
UGA does this by using futures based on unleaded gasoline, also known as reformulated gasoline blendstock for oxygen blending (or RBOB), that’s bound for the New York harbor.
This material is traded on the New York Mercantile Exchange (NYMEX).
It follows the gasoline futures contract that’s nearest to expiration. The management expense ratio is only 0.6%, too.
So if you’re looking to alleviate the pain next time you’re at the pump, consider owning this gasoline ETF.
And “the chase” continues,