Lower Summer Gas Prices? Here’s an investment strategy…
If we do experience lower summer prices at the pump, we will also see the price for a barrel of oil fall as well. Thus, we’ll hear about an oversupply of oil, lack of demand and all sorts of other quips about the demise of high-priced oil.
I am of the opinion that lower oil prices will be a temporary condition and certainly will dissipate once the economy gains speed in its recovery. Ultimately, we’ll see prices creep back up.
If weakness in the oil market is temporary, then use patches of weakness as an opportunity to get into certain positions at a low price. The spot price of oil will impact the per share price of many stocks and funds that are in the oil business.
Here’s one strategy…I’ve spoken before about MLP (Master Limited Partnerships). Most of these companies are in the business of the transport and extraction of energy (primarily oil and natural gas). Since this is the case, a weaker oil market will make their future profitability look less bright and thus drive down their share price. If this does happen, you may be able to get a good per share price and a higher dividend yield on the MLP you’re dreaming of. Use the weakness in energy to get the MLP you’ve always wanted at a discount price.
Once you nab your MLP you can hang on to it and cash in on its high dividend yield or wait till oil prices rebound and sell the stock at a higher per share price. Of course risks exists, but opportunity does as well!
Don’t want an individual MLP? No problem! ETFs exist that hold a diversified set of MLPs. One that I watch is
A few other MLPs that I keep my eye on are:
- ETP – Energy Transfer Partners
- LINE – Linn Energy
- EPD – Enterprise Products Partners
- AMJ – (ETF) JPMorgan Alerian MLP Index
This is just one of many ways to play a weak oil market this summer.