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Protect Yourself From Oil Price Increases With A Single Investment

By John McCormick  

When economic disaster looms you can complain and place blame, or you can look at reality and profit or protect yourself.

Many businesses and any stock investor can easily do this through a direct investment in the price of oil - buying one or more shares of USO (see below).

Of course everyone can also take simple steps to reduce their own use, such as driving less, getting a car that gives better mileage, or just making certain your vehicle's air filter is clean and the tires are at the correct pressure - that alone can be the equivalent of reducing the price of gasoline by 20-cents or so.

There are several reasons why oil and therefore gasoline have surged in price lately. A lot of it isn't due to actual shortages yet but because there is great fear that further disturbance in the mid-East will cut world supplies (the U.S. imports about 63% of the oil it uses - every president in 35 years has promised to reduce foreign oil dependence but none ever did anything to make it happen).

But investors (people who who don't understand what they do call them speculators) only respond to market pressures.

Fortunately anyone with any money to invest can "buy" protection by purchasing a single "stock" - USO. This is actually an ETF or exchange traded fund which closely tracks the cost of a barrel of top quality oil.

If you think or worry that oil will go up as more and more mid-East oil suppliers undergo political changes or just because you know demand is increasing in China and India while supplies dwindle, buy USO.

A single share of USO currently costs about $42 - last September it cost $32 and about a month ago it cost less than $36.

Think of a single share as a half-tank of gasoline for a big SUV and you can see how this single investment can benefit you.

This isn't a perfect solution and a year ago the price was about what it is today. But it is a form of protection, especially in the short term when there is a large amount of fear and speculation built into the price.

This chart shows average U.S. gasoline prices for a year

http://gasbuddy.com/gb_retail_price_chart.aspx

and this one for five years

http://gasbuddy.com/gb_retail_price_chart.aspx

If you compare that to a 5 year price chart of USO you will find they are nearly identical.

http://finance.yahoo.com/q/ta?s=USO+Basic+Tech.+Analysis&t=5y

Please note, I am NOT suggesting you SHOULD buy the USO ETF, just that if you are concerned oil and gasoline prices will continue to increase, buying the ETF can provide financial protection, simply sell your shares when the price goes up.

Of course the USO price would drop if oil prices drop. But unlike options or commodity trading, you can buy USO and hold on to it for years if you feel oil prices will eventually go up anyway.

John McCormick is a reporter, /science/medical columnist and finance and social commentator, with 17,000+ bylined stories. Contact John through NewsBlaze.