Here's Why Oil Is So Expensive
Like all ETFs, UNG and USO have inescapable administration and transaction costs eating away at longer-term returns. With the use of options, I am able to mitigate risk and take advantage of time decay. When I position into UNG, I either sell covered calls or write put options. My risk is lower and my odds of success are greater.
Holding a UNG/USO position will likely feel much like taking the summer family vacation with three young sons, like I do. I am already expecting the question, "Are we there yet?", to cause an involuntary twitch in my face by the end of this summer's trip. Similarly, low natural gas prices are not going to cause a drop in oil prices without taking some time.Natural gas prices are so low, new planning for drilling and exploration have all but halted. Meanwhile, gas and diesel prices remain near $4 a gallon throughout most of the country. In my view, $100+ oil is unrealistic, and Saudi's efforts to maintain a price of $100 will be a challenge. I believe front month West Texas Intermediate is more likely to trade near the $50-$70 per barrel range within a year to 18 months. 6 Stocks to Benefit From Truckers' Switch to Natural Gas >> The three biggest markets for oil are shifting in both supply and consumption.
EuropeStarting with Europe, where oil trades at a relatively new premium compared to North America, we may see the divergence close soon. Overall, I believe the European economy is sinking further into the abyss rather than climbing out. The United Kingdom is staring directly into the face of a double-dip recession. While oil and natural gas consumption has remained steady, production has declined. The U.K. is now a net energy importer instead of exporter. At the same time, the U.K. debt is
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts