What's Behind Crude's Recent Run Up

 |  Includes: BARL, OIL
by: Scott Rothbort

I was interviewed by Investor's Business Daily on Friday. The topic of the conversation was causation of the recent run up in crude oil prices. I provided several reasons which have all concurrently contributed to the spike in prices. All of these reasons can and have lead to unbridled speculation and hoarding in the commodity:

1. Concerns over mounting tensions associated with the nuclear weapons threat coming out of Iran;

2. Trapped crude oil which is unable to make itself from Canada or Oklahoma to the coastal refineries in the US;

3. Lack of a comprehensive, cogent and practical energy policy from the administration in Washington;

4. A failure of the CFTC to prevent and curb excessive speculation; and,

5. The media. Apparently, according to the local and national news, gas prices at the pump are going to $5. That prognostication is based on speculation, not fact or rigorous research.

Of all those reasons above, the one that provides the greatest long term opportunity is #2, which as it turns out is also a byproduct of #3. We cannot get the raw product to the refineries fast enough or efficiently. Thus we need to focus on both oil and gas storage and transportation. We also have to get over the "not in my back yard" issue and build more refineries. I am not going to point you to a specific company, but will tell you to look at midstream companies which specialize in storage and transportation. I would emphasize earnings strength over payout ratios in this part of the master limited partnership (NYSE:MLP) sector.

Disclosure: At the time of this commentary, Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC had no positions in stocks mentioned, although positions can change at any time.