Hopes for a prolonged QE program under the leadership of Janet
Yellen - nominated Fed chairperson - has spread optimism globally
across commodities. This has resulted in a weakening dollar and
higher prices for crude oil and refined crude products like
The average price of gasoline bounced to nearly $3.20 per gallon
from its 33-month low of about $3.17 earlier last week. Immediately
following Yellen's testimony which suggested to many that the
stimulus would be kept intact at least for the short term, gasoline
price gained almost a penny in last Wednesday trading. This marks
the biggest one-day gain since October 16th (read:
3 Commodity ETFs Surging Higher
A rise in global oil prices and refinery issues on the East Coast
also supported the rising gasoline price. The rise also spread
cheers in the ETF world as the pure play on the gasoline futures
United States Gasoline ETF (
- was up nearly 4.3% last week. This easily outpaced the gain of
3.31% for Brent Oil (
) and 0.38% loss for WTI crude oil (
However, this gain looks to be short-lived given the demand/supply
imbalances and negative macro fundamentals. The ETF is down over 2%
in the year-to-date time frame and more than 6% in the past 90
days. The fund has managed assets of $57.6 million so far.
The fund seems on a downtrend based on both technical and
fundamental factors described below (see:
all the Energy ETFs here
The fund currently trades near its 52-week low of $53.35 and its
short-term moving averages are well below the long-term average as
depicted by the 200-Day SMA in the chart below. This suggests
continued bearishness for this ETF.
This is further confirmed by the downswing in the Parabolic SAR,
although this figure should definitely be monitored closely.
Moreover, volume doesn't look great, probably indicating a low
level of interest and additional cost in the form of a wide bid/ask
spread beyond the expense ratio of 0.60%.
The fund provides investors exposure to front-month gasoline
futures, tracking RBOB gasoline for delivery to the New York harbor
which is traded on NYMEX.
As traders need to roll from one future contract to another, it can
enjoy the benefits of a roll yield. If the front-month contract is
higher than the next-month contract (also called backwardation),
the roll yield is positive (read:
Gasoline ETF Surges on Refinery Issues
Currently, the gasoline market is in backwardation, which is
bullish for the commodity and the gasoline ETF UGA. However, this
situation does not look to be sustainable, as the RBOB gasoline
futures contract for January 2014 is trading lower than February,
signaling negative roll yield (contango).
Gasoline Price Outlook
Though gasoline prices have shown strong support following Yellen's
QE promise, it is still likely to fall in the coming days on the
back of excess supply, resuming production at refineries, sluggish
demand and lower crude oil prices.
Gas prices are declining in some parts of the country including
eight states, while Missouri saw prices fall below the $3 per
gallon mark. Many industry experts expect prices to hit a fresh low
to close out the year.
Further, the resumption of talks between Iran and six major powers,
the U.S., Britain, France, Russia, China and Germany, could ease
the decade-long tension over the nuclear dispute. This would lead
to an increase in Middle East supply and put pressure on global oil
Oil ETFs in Focus Ahead of Iran Talks
According to the
Energy Information Administration
(EIA), the average weekly gas price has fallen over 40 cents per
gallon since the beginning of September. The agency expects
gasoline prices to average $3.24 per gallon for the current
quarter, $3.50 per gallon for this fiscal year and $3.39 per gallon
for the next. This numbers are down from average $3.63 per gallon
Given the above discussion, investors should take caution while
trading in gasoline ETFs or avoid trading completely for the time
being. Prices may definitely have further to fall in the short
term, so watch out for an end of year drop in this key market.
Want the latest recommendations from Zacks Investment Research?
Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
US BRENT OIL FD (BNO): ETF Research Reports
US GAS FUND LP (UGA): ETF Research Reports
US-OIL FUND LP (USO): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for the
Next 30 Days. Click to get this free report