Guess What's On Fire Sale?

Vindicated on my Gas Price Prediction... Here's How You'll Profit From It Now

As you all know, two months ago today I told you that prices on gas were going to be going through the floor.... and it turns out I was right, only I did not fully predict the extent to which I would be correct, and it all happened much sooner than I thought.

I told you that prices on a barrel of oil were going to go below $60 before this year. If you pay attention to anything along the lines of economic news, you can see that prices have gone much lower than this.... down near about $45/bbl today.

So I was overjoyed for about three seconds on Friday when I filled up my vehicle at $1.39 per gallon. The joy lasted only three seconds, because I realized that these sickeningly low gas prices can only mean one thing: economic trouble ahead, "globally and around the world, as well as internationally." (George Bush, 2006).

As I told you before, the low prices are a function of many global forces gone haywire all at once, including but not limited to:

- seasonal level of demand, which is always lower the winter months
- slowing production demand in China and Europe, due to recessions and other economic uncertainties
- an incredibly strengthened dollar, the currency in which oil is denominated
- the oil "fracking" revolution, which has gradually brought oversupply to the markets
- a dysfunctional OPEC, which can no longer make cohesive decisions on world oil supply

These combined factors and events have led us to today, a time when oil, as a commodity, is priced somewhere it hasn't been in over six long years. Take a look:

To put things bluntly, oil is on sale! And you must buy now in order to take advantage of this opportunity you may not see again for years to come. Let me explain.

What you can buy to profit from the coming oil price surge

There are two ways to buy gas. The first is at the pump. We all do it. And we're overjoyed when prices are as low as they are now, but buying gas at the station doesn't make us wealthier. It just makes us poorer less quickly.

But we can, in fact, become richer, by buying "oil" on the market, and earn dividends or capital gains (i.e., free money) as the price of oil rebounds or normalizes, as most experts agree it should this year.

We buy oil by investing in ETFs, a type of stock, which tracks the price of oil. If you buy an ETF that tracks the oil price, and the price of oil goes up, you make money. simple.

My favorite way to buy oil is investing in USO, the United States Oil ETF. It fairly accurately tracks the price of oil over time. Maybe not pip for pip, but no ETF is perfect.

USO is trading right now at $17.00. Back at the time of my prediction at the end of November, it was trading at around $28. At that point, the price of oil was about $75.

Most "experts" have a consensus that given the state of the global economy, a good target for oil by mid-2015 is around $70-$75, no higher. From current levels, that's a modest rebound of around 60-66%.

The odds are pretty low that oil can crater much further from here. I don't imagine I'll see gas any cheaper than I did back when I was in high school (yes, I'm that young). But the odds of a price normalization for oil are good. It's a safe bet that things are getting less bad for oil than they have been over the last several months.

How do you buy USO, and take advantage of the potential returns? Simply open up a brokerage account, if you don't have one, and put in an order for USO. As always, my recommendation is to put no more than 5% of your total investing funds into one investment. So, figure out how much that is for you at $17 per share for USO, and buy that many shares if you can afford them.

Place a trailing stop on this position of 20%. That way, you'll be risking no more than 1% of your total investing funds. This position is purely speculative... but the risk/reward setup makes sense from my perspective.

There's no sure thing in investing. But there are great opportunities that come up once in a while which have a higher likelihood for success than others. In my mind, this is one of them.

Live long and invest,

Jeremiah