Gasoline ETF Offsets Higher Prices at the Pump

| About: The United (UGA)

Gas prices are moving higher, and it’s not normal for this time of year. There may be more in store, but by using the gas exchange traded fund, you could help offset the gouging at the pump.

High gasoline prices are plaguing the nation, and there appears to be no letup in sight. Gary Strauss for USA Today reports that a gallon of regular unleaded gas averaged $2.977 on Friday and more than $3 a gallon in 20 states, which is 34% higher than a year ago.

What’s driving the price of gas higher now, when it is usually lower?

  • A strengthening global economy mixed with a weak U.S. dollar and higher commodity prices overall are the main culprits. This comes at a time when the price of gas is usually lower due to weaker demand.
  • Mark Huffman for Consumer Affairs reports that crude oil prices saw a high surge this past week as well, and this is taking gas prices along for the ride.

United States Gasoline (UGA) is up 8% over the last 10 days. If you think that gas prices will continue to go up and want to “lock in” low prices now, consider this strategy:

Let’s say you drive approximately 14,000 miles a year and your car gets 20 miles per gallon. That means you use about 700 gallons of gasoline per year (14,000 divided by 20 = 700). At the current rate of about $2 per gallon, that means you’re spending $1,400 per year for gasoline.

In this scenario, you could hypothetically purchase $1,400 worth of UGA and hold on to it for a year. If gasoline prices rise and you end up paying more at the pump, you could also end up making money on your UGA shares. But be sure you’ve got that exit strategy – sooner or later, the trend will end.