USO also endures harsher tax treatment. ETFs that track oil futures contracts face higher taxes than other funds due to their regulation by the Commodity Futures Trading Commission (CFTC). That means investors receive higher taxes as well.
While a crude oil index ETF offers some returns, there are better profit opportunities in the energy sector.
The best oil stocks to buy during contango periods are midstream master limited partnerships (MLPs). These are the firms that own assets like pipelines and storage facilities.
Money Morning Resource Specialist Peter Krauth recommends one with more than 14 terminals in strategic locations across the United States…
The Best Alternative to a Crude Oil Index ETF
A great midstream investment right now is World Point Terminals LP (NYSE: WPT).
World Point owns and operates storage facilities for crude oil, jet fuel, and liquid asphalt. Its terminals are scattered across the East Coast, Gulf Coast, and Midwestern United States.
As of early March, the MLP has 12.8 million barrels of storage capacity across its more than two dozen facilities. Its widespread locations allow the company to provide easy access to transportation near demand markets and export hubs.
“I wouldn’t be surprised to see shares gain 40% to 50% over the next six months as the market comes to realize that production cuts will soon kick in and demand isn’t about to fall off a cliff,” Krauth explained. “In fact, I expect demand to get somewhat more robust as retail, commercial, and industrial consumers find ways to use more at these lower prices.”
Yahoo! Finance has a one-year target estimate of $20.75. That’s 22.1% higher than WPT stock’s current price of $17 a share.
The Bottom Line: Investors are throwing money at oil index ETFs to profit from the oil price rebound. But today’s contango environment causes these funds to miss out on gains due to the gap between the spot price of oil and futures price. Instead, investors should focus on midstream companies because they stay profitable as long as the oil keeps flowing. World Point Terminals LP is a healthy long-term buy as demand picks up throughout the year.
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