Home heating oil pricesBy Joe Mont, TheStreet.com

Investing doesn't just have to be about increasing wealth. It can also be a means to preserve it.

Successful investors -- from speculative day traders to steadier 401(k) participants, for example -- will adjust their holdings to craft a portfolio capable of meeting or beating the rate of inflation. With the price of home heating oil on the rise, and likely to keep increasing due to global politics, now might be a good time for investors to place a bet on the price per barrel to hedge against the costs of staying warm this winter. As they say: "If you can't beat 'em, join 'em."

According to the U.S. Energy Information Administration, the mild winter thus far in the Northeast, where there is the highest concentration of oil-heated homes, has mitigated some expected cost increases.

The typical household is projected to use about 650 gallons of heating oil this winter, a decrease of about 4% compared with last winter. The cost per gallon will increase, however, averaging about $3.82 a gallon -- up about 13%, according to EIA estimates issued last week. The average home heating bill will total about $2,500 this year, an increase of roughly 8.4%. The good news, thanks to warmer-than-expected weather, is that the EIA initially estimated a 10% jump last month.

Those projections could prove to be moving targets later in the season due to a variety of threats to the world's oil supply chain.

On Monday, the European Union voted to support U.S. calls for a ban on imports of Iranian oil as punitive persuasion to get that nation to back away from an effort to develop nuclear weapons. Iranian officials have threatened to blockade the Straits of Hormuz, the oceanic shipping route for most oil-producing countries in that region.

"If the Straits of Hormuz close, oil will rise above $200 per barrel," warns Chris Faulkner, CEO of Breitling Oil & Gas, an independent exploration and production company based in Irving, Texas. "It is the one bottleneck that allows Iran to choke the West's oil supply."

Seventeen million barrels of oil per day passed through the Straits last year, according to the U.S. Energy Information Agency -- approximately one-sixth of global oil production and nearly 20% of all the oil traded worldwide. Iran itself exports between 2.2 million to 2.5 million barrels a day.

Iran isn't the only hot spot that could lead to tightened supplies and higher prices. Political conflict in Nigeria threatens its output of 2.5 million barrels a day. Tensions between Sudan and the newly independent nation of South Sudan over oil-related transit fees could curtail the nearly 500,000 barrels per day that flows from that area.

Domestically, it remains to be seen whether there will be any price-related pushback to President Barack Obama's refusal to grant a permit for the politically charged Keystone XL pipeline expansion pitched as running from Canada through Montana and Oklahoma to refineries in Texas for export.

Hedge Your Home Heating Bill with Energy Stocks


All that volatility may not necessarily be terrible news from an investing standpoint, especially if your goal is to mitigate that 8.4% price increase for heating your home this winter by betting on companies in the oil business that profit while consumers get hit.

The big oil companies of the world -- ExxonMobil (XOM), BP (BP), Chevron (CVX), ConocoPhilips (COP), Occidental Petroleum (OXY), Devon Energy (DVN), Chesapeake Energy (CHK) and Anadarko Petroleum (APC) -- are well-positioned to benefit when the global commodities marketplace inflates crude prices.

For example, in October, ExxonMobil announced that its quarterly profit of $10.3 billion was up 41% from a year earlier, in part due to rising crude prices. In April, the company's Q1 earnings spiked 69%.

Investing in the top oil companies will also net you a dividend yield that typically ranges between 2% and 4%.

If these individual stocks are too pricey for your budget, you may want to seek out mutual funds that include some of these top companies among their heavily weighted holdings.

Supply disruptions overseas -- even in the short term -- increase demand for alternative sources, which is good news for companies focused on drilling and exploration. Anadarko, for example, has oilfields in several U.S. States and, further North, Canada's vast oil sands could be a continued boon for Suncor Energy (SU).

North Dakota and Montana are home to "The Bakken," a formation of shale covering about 200,000 square miles that is estimated by the U.S. Geological Survey to have as much as 4.3 billion barrels of potentially recoverable crude. Among the companies working to extract that oil are Continental Resources (CLR), Hess (HES), Oasis Petroleum (OAS), Kodiak Oil & Gas (KOG), Northern Oil & Gas (NOG), MDU Resources Group (HEW), EOG Resources (EOG), Whiting Petroleum (WLL) and Marathon Oil.

Pipeline owners such a Constellation Energy (CEG) may also their stock price rise in concert with oil prices, as could Schlumberger (SLB), the world's largest oilfield services company.

Oil refineries feel the pinch of rising costs per barrel as their costs to buy oil go up even as demand for their finished product drops. Offshore drilling companies such as Transocean (RIG) -- despite the Deepwater Horizon disaster -- and SeaDrill Limited (SDRL) are key players in that arena.

It Doesn't Have to Be Complicated


The simplest way to hedge against oil inflation for most Main Street investors is to consider ETFs designed with that very goal in mind.

In its prospectus, United States Heating Oil Fund (UHN) is described as "a way for investors and hedgers to manage their exposure to energy" and an ETF "designed to track in percentage terms the movements of heating oil prices." Year to date, the fund is up 5.6%, and it saw a return of 15.64% for a one-year period.

The United States Oil Fund (USO) is designed to track the price movements of light, sweet crude oil. Unfortunately its returns have been far from stellar, down approximately 21% so far this year and at -54.5% since its inception in 2006.

Other funds worth investigating are the iPath S&P GSCI Crude Oil TR Index ETN (OIL), SPDR S&P Oil & Gas Exploration & Production ETF (XOP) -- which has a three-year return of over 22% -- SPDR Oil & Gas Equipment & Services Fund (XES) and the PowerShares DB Crude Oil Long ETN (OLO) -- up a slight 0.14% for the year.


More on The Street.com


Increase your money and finance knowledge from home

Investment Strategies

What's your investing game plan?

View Course »

Managing your Portfolio

Keeping your portfolio and financial life fit!

View Course »

Add a Comment

*0 / 3000 Character Maximum

27 Comments

Filter by:
zacmularz

You can heat your home for near free on used car motor oil
check it out here
http://wasteoilburnerhq.com/

July 26 2012 at 12:15 PM Report abuse rate up rate down Reply
burgesswv

5. let that large dog sleep with you for winter warmth

January 25 2012 at 4:35 PM Report abuse +1 rate up rate down Reply
burgesswv

How to beat the living costs ? easy; stay warm in your local library 2. use candles for ligfhting. 3. eat out a McDonalds , its cheaper than home cooking4.. visit your church sales for used clothes.

January 25 2012 at 4:12 PM Report abuse rate up rate down Reply
Mudd

Riiiight. Pay the man whatever ungodly price he demands to heat my house this winter, and then buy stock in his huge-ass company that gives not a single **** about me, so he can stick it to me even harder next year! Sounds legit!

January 25 2012 at 1:17 PM Report abuse rate up rate down Reply
tutularu

I can no longer afford gas like I used to. I retired recently, so I sat down and started to keep track of where I drive on a regular basis. Then I plan out my trips. I do as many errands I can in a straight line to my last errand and return home on that same line. I travel like this anywhere from 1 to 3 trips a week. But never very far. I have a new car and it gets good mileage. I spend between $20-25 month on gas. TOPS. I am lucky. As gas goes up my driving goes down.

January 25 2012 at 12:10 PM Report abuse rate up rate down Reply
JIM

If Obama has his way electricity will be just as expensive as oil or worse. We need oil, lots of oil and we have lots of oil so lets go get it.

January 25 2012 at 11:22 AM Report abuse -3 rate up rate down Reply
captainandy324

Get ride of OPEC and start burning wood. Its much more renewable. But the problem lies in the fact that it is work to keep the fire feed,and most lazy Wall Mart type people cant get out of their Lazy boy chairs to put another log on the fire. It cost me about $300 a yr for wood. And the heat is a constant radient type of heat. The Best.

January 25 2012 at 11:07 AM Report abuse -1 rate up rate down Reply
1 reply to captainandy324's comment
Brek Randolph

Yes sir, it takes a little bit of effort to feed the wood burner. Americans maybe lazy, but they aren't totally stupid either. Why should they go to that extra effort? The gov will pay all or part their fuel bill cause they are "low income." Why do a garden when gov will give you $200 in food stamps a month. A hard working guy gets hosed in taxes, an economically disadvantaged person gets "benefits." It is easy to sit on one's ass, try it some time Captainandy. Try living like the other half, holding down the recliner for 8 hrs a day, making sure the TV doesn't go anywhere eating free ice cream. It is not a bad life, as an American you are entitled.

January 25 2012 at 1:26 PM Report abuse -1 rate up rate down Reply
mfg75123

just wondering
shouldn't a story like this come out before winter starts?
just say'n

January 25 2012 at 9:05 AM Report abuse +2 rate up rate down Reply
Dyna L Ride

Before you hit wall street and get rid of it there you have to get rid of the greedy pigs in our nations capital first who are supporting it that live well beyond there means because they can with the backing of corporations they will never go with out like we do now. struggling to feed our familes heating our homes, cooking gas is getting up there with it too and lets not forget that if you switch, the big electric companies have you by the short hairs too, so either way you look at it we are screwed. the citizens of this country needs to get up and stand against the goverment they do not look out for our best interest by any means. for the people by the people what ever happened to that quote more along the lines of screw the people by the goverment and i agree if the media would shut the **** up and stop breaking the news about how prices are going we wouldnt have panic stricken chaos going on. the goverment needs to cap all of this and well below what the prices are now at least by 50% then the nation can get back on its feet but then again you dont realize it any way that prices are slowly rising what you bought before for a $1 is now a $1.20 and you wont think about and realize it until the next time. i know i know some of you political tree huggers will say it's not the goverments fault they're just doing there jobs well your right they are by putting this country in the ground it wouldnt suprise me if there is a for sale sign labeled and some one bought it **** we are in debt to many countries begining with china and so on. so again get rid of the goverment let the people of the USA balance the books and i bet we we wouldnt be in a mess that we are in now if not then replace the goverment. Obama will not get my vote next election he has not shown any improvement other than he can be laid back and blend in and act cool and casual thats fine but do what your hired to do save this country damn it!

January 25 2012 at 7:03 AM Report abuse rate up rate down Reply
David Rivero

We have had the cabability to alternative energies for a long time. We do not implement these ideas because of greed fat cats, government, power and alike. We are the world's lead in technology and with that being said, do you really think we could not solve this problem if we were willing to do what it takes. Give me a break !!!

January 25 2012 at 6:28 AM Report abuse rate up rate down Reply