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Commodity Review: Time to Profit on Higher Oil and Gasoline Prices?

|Includes: iPath S&P Crude Oil Total Return Index ETN (OIL), USO

Gasoline prices are rising again while oil price increases may or may not be tapering off over fears of a confrontation with Iran and a possible growth slowdown in China. So what should investors and traders alike do amidst all of this gasoline and oil price uncertainty?

For starters, the "experts" themselves aren't certain about where gasoline prices are heading. In a recent LA Times article, one analyst was quoted as saying that the rise of the price of gasoline is so unbelievable that he may have to revise upward his previous gasoline forecast while another analyst said that those predicting widespread $5-a-gallon gasoline prices are wrong.

Meanwhile, a whole list of reasons (or excuses) has been given to explain the sudden gasoline price rise, including:

· Refinery closures.

· Oil pipeline closures.

· Refinery maintenance stoppages.

· A switch from cheaper winter to more expensive summer gasoline blends.

· Stock market and commodity speculators.

· Refiners devoting more oil to fuel distillates such as diesel for export overseas.

Investors or traders wanting to profit from higher gasoline and oil prices could choose to invest in the iPath S&P GSCI Crude Oil Total Return ETN (NYSEARCA:OIL), an exchange traded note (NYSE:ETN) designed to reflect the returns of an unleveraged investment in the West Texas Intermediate (NYSE:WTI) crude oil futures plus the Treasury Bill rate of interest that would be earned on funds trading of the underlying contracts while another option would be to invest in the United States Oil Fund LP ETF (NYSEARCA:USO), which invests in NYMEX futures contracts and cash. According to Google finance, both are up over 7% since the start of the year but down over 3% over the past year while OIL is down 28% and USO is down 20% over the past five years.

However, it should be noted that while both OIL and USO have generally moved in the same direction as the price of oil, they are NOT guaranteed to track movements in spot oil prices perfectly and may not even come close to doing so over a long period of time.

Hence, investors or traders might want to consider one of several ETFs that invest in oil stocks or individual oil stocks themselves. One such low cost ETF worth considering is the Vanguard Energy ETF(NYSEARCA:VDE) which is up about 7% since the start of the year, down around 5.7% over the past year and up 32.5% over the past five years. Most of the ETF's holdings are in stocks classified as Integrated Oil & Gas, Oil & Gas Exploration & Production or Oil & Gas Equipment & Services.

  Stock Ticker Exchange YTD Returns*
1. Exxon Mobil XOM NYSE +2.65%
2. Chevron CVX NYSE +2.74%
3. Schlumberger SLB NYSE +10.8%
4. ConocoPhillips COP NYSE +6.44%
5. Occidental Petroleum OXY NYSE +10.48%
6. Anadarko Petroleum APC NYSE +8.95%
7. Apache Corp. APA NYSE +18.05%
8. Halliburton HAL NYSE +1.62%
9. National Oilwell Varco NOV NYSE +17.58%
10. EOG Resources EOG NYSE +14.91%

* According to Google Finance as of the close of trading 03/05/2012.

Note: Ten largest holdings = 60.1% of total net assets as of 01/31/2012.

Likewise, more adventurous investors or traders might want to take a closer look at the PowerShares S&P SmallCap Energy Portfolio (NASDAQ:PSCE) which is based on the S&P SmallCap 600 Capped Energy Index - a measurement of the overall performance of US energy stocks. Specifically, PSCE component stocks are involved in oil and gas exploration and production, refining, oil services, pipeline and solar, wind and other non-oil based energy.

  Name Ticker Exchange YTD Returns*
1. Lufkin Industries LUFK NASDAQ +14.93%
2. SEACOR Holdings CKH NYSE +9.66%
3. Bristow Group BRS NYSE -1.2%
4. Gulfport Energy GPOR NASDAQ +9.25%
5. Cloud Peak Energy CLD NYSE -14.34%
6. Swift Energy SFY NYSE +2.22%
7. Exterran Holdings EXH NYSE +55.55%
8. Stone Energy SGY NYSE +16.57%
9. Hornbeck Offshore Services HOS NYSE +31.43%
10. Comstock Resources CRK NYSE +4.64%

* According to Google Finance as of the close of trading 03/05/2012.

Note: Ten largest holdings as of 3/2/2012.

According to Google Finance, the PowerShares S&P SmallCap Energy Portfolio (PSCE) is up around 8% since the start of the year, down around 7% over the past year and up about 45% over the past five years.

At the end of the day though, history has shown that oil prices and hence oil ETFs and oil stocks can be volatile and subject to sudden pullbacks based upon unexpected geopolitical or macroeconomic events. This means that investors and traders alike should keep an eye on their Next Candle stock forecasts for individual oil stocks over the coming weeks and months as there can easily be a sudden directional change should matters in the Middle East boil over or if the US, Chinese and global economies show more signs of trouble.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.