How To Profit From The Gasoline Rally

Includes: TSO, UGA, XOM
by: CommodityHQ

By Jared Cummans

While many have their sights set on silver’s impressive run, or crude oil’s volatility, another commodity has been surging. Gasoline RBOB futures have amassed a healthy momentum in recent weeks as this fossil fuel continues test the upper boundaries of its price limits. In fact, the trailing three months have seen RBOB futures surge by nearly 50%, spawning from a number of supply issues, including a refinery explosion last week that, thankfully, claimed no lives. Low inventories continue to propel RBOB futures, while crude oil looks to regain the ground it lost since its recent run at $100.

“Within RBOB futures, we see continued price strength despite the demise of the October futures contract. While we still view the euro currency as primary driver of oil price direction looking across this new month of October, we still see the gasoline market as the ‘tail wagging the dog’ over the shorter term one-two week period until supply tightness in the northeast is alleviated,” said Jim Ritterbusch, president of oil trading advisory firm Ritterbusch & Associates.

Though a long-term play would be difficult to predict, it would appear that a number of problems on the supply side of RBOB have made it a lucrative play in the short term. Below, we outline several options, both direct and indirect, to invest in this surging commodity.

  • United States Gasoline Fund LP (NYSEARCA:UGA): This fund is designed to track front-month gasoline futures, allowing you to make a play on the futures market without the hassle of a futures account. Don’t let the $66 million in assets scare you. UGA is designed as a trading instrument, and is probably not held for extended periods of time by most of its investors.
  • Tesoro Corporation (NYSE:TSO): TSO is a popular U.S. refiner with a market cap just shy of $6 billion. The stock is extremely liquid, trading an average of 4 million times each day, and holds a solid EPS of 4.68. The firm has nearly doubled its stock price since May, proving it to be a great way to take advantage of the RBOB rally. Be warned, however, that the stock is sitting at its 52-week high, which may ward off some investors.
  • Exxon Mobil (NYSE:XOM): While XOM’s business model takes far more than just RBOB into account, it will still be a decent and safe way to obtain exposure to this rally. It's worth noting that the $425 billion dollar firm is at an all-time high, while maintaining a nice yield of 2.5%.

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Disclosure: No positions at time of writing.