Gasoline Futures Catch Fire (UGA)
Jared Cummans: The past few days have seen a number of factors combine to push gasoline prices higher. The most notable price drive came from hurricane Sandy, which wreaked havoc on the east coast and caused what some are estimating tens of billions of dollars in damages. With pipelines and stations around the country knocked out by the “superstorm”, gasoline futures have been on a 10% tear in the trailing 5 days, with more than 5% coming today [for more gasoline news and analysis subscribe to our free newsletter].
“Gasoline jumped more than 5 percent as fuel suppliers bought November futures contracts to cover near-term delivery agreements after the biggest Atlantic storm in history closed terminals and pipelines” writes Barbara Powell. One of the biggest concerns surrounds Phillips 66, as their New Jersey refinery, responsible for 238,000 barrels each day, could be shut down for an extensive period of time.
Some are buying up gasoline futures in speculation of the total damages and difficulties that will come as the full extent of the damages is assessed. Though it will be difficult to predict when major pipelines and refineries will be fully operational, gasoline futures will almost certainly be volatile. Some investors may want to buy in now to ride out a rally, while others may be looking to take short positions at a peak, and hope for a correction once things are back under control [see also Top 5 Global Oil Stocks by Market Cap].
Aside from investing directly in the futures market, the United States Gasoline Fund (NYSEARCA:UGA) is one of the more popular options out there. The fund tracks front-month gasoline contracts and trades more than 42,000 times each day. UGA has returned more than 47% in the trailing three year stretch with a nice 14% gain thus far in 2012.
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