Lock in $1.70 Gas for Next Year
Independent Investment Advice

by John Dalt

01/13/09

Yesterday I wrote about the oversupply of oil and reading the U.S. Energy Information Adm. weekly reports for crude oil.  I relayed the difficulty of reading these reports as they could put you to sleep.  I apologize that I had problems with the e-mail program and could not place the charts in the letter.  Instead of taking the time to fix the problem, I took the short cut and included a link, which meant you had to wade through the bureaucrat’s language to see the charts.  I wanted to get the letter out quickly.  The charts are below.  They show the build in oil inventory and the days of supply at our current usage.

As I promised yesterday, I will include a weekly update on oil since it is so important in today’s economy.  I am not currently in the oil market, but will be in our swing-trading portfolio shortly.  The price of oil reflects the credit markets, global politics, the world economy, fear and greed.  The order of importance of these factors changes daily.  An idea today you may want to consider is to protect your family from the future cost of gasoline.  You can do this with the United States Oil Fund (USO), or the U.S. Gas Fund (UGA).  Both of these funds invest in near month futures to replicate the movement in the price of the commodity.  I like the USO because it is heavily traded.  Gasoline does not follow crude pricing perfectly because of refining.  Refiners may command a higher or lower crack spread on gasoline at different times depending on supply and demand.  Traditionally the summer driving season increases demand for gasoline and the crack spread widens.  Foreign competition, oversupply to the market and demand destruction last year kept a lid on profits for the refiners. 

If you plan to drive 20,000 miles next year and your car gets 17 miles to the gallon, you will use 1177 gallons of gas.  Today the price of gas is about $1.70.  1.70  X 1177 = $2001.  Today you can buy $2000 worth of one of these ETF’s and drive next year for the same net price.  You might want to buy a few years worth! 

Our Congress is back in session, so keep the women, kids and your wallet within eyesight.  I will close today with a quote sent to me by a reader: 

"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."

- Cicero - 55 BC

I bet Cicero and all Romans wished they had listened.  Historians estimate that 20% of the population of Rome became freeloaders that lived off the state.  Rome’s population fell after the wealthy residents refused to support them any longer.   

WARNING:    The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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