This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Here's Why Oil Is So Expensive

NEW YORK (TheStreet) -- Increasingly, a long U.S. Natural Gas ETF (UNG) and/or short U.S. Oil ETF (USO) position is appearing attractive. I often trade both, along with their options.

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.


Starting 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 climbing fast and will have to be brought down soon, one way or another.

These two events are related, in my view, because the U.K. has overspent with various government programs based on the ability to export oil. What the money was spent on, and the politics involved, are beyond the scope of this article.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
CMI $117.03 0.00%
CLNE $2.86 0.00%
USO $11.30 0.00%
UPS $105.07 0.00%
UNG $6.93 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs