How to Heat Your Home for Free (or Profit)

BOSTON (TheStreet) -- 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.

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 (Stock Quote: XOM), BP (Stock Quote: BP), Chevron (Stock Quote: CVX), ConocoPhilips (Stock Quote: COP), Occidental Petroleum (Stock Quote: OXY), Devon Energy (Stock Quote: DVN), Chesapeake Energy (Stock Quote: CHK) and Anadarko Petroleum (Stock Quote: 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 (Stock Quote: 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 Resourcess (Stock Quote: CLR), Hess (Stock Quote: HES), Oasis Petroleum (Stock Quote: OAS), Kodiak Oil & Gas (Stock Quote: KOG), Northern Oil & Gas (Stock Quote: NOG), MDU Resources Group (Stock Quote: HEW), EOG Resources (Stock Quote: EOG), Whiting Petroleum (Stock Quote: WLL) and Marathon Oil.

Pipeline owners such a Constellation Energy (Stock Quote: CEG) may also their stock price rise in concert with oil prices, as could Schlumberger (Stock Quote: 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 (Stock Quote: RIG) (despite the Deepwater Horizon disaster) and SeaDrill Limited (Stock Quote: SDRL) are key players in that arena.

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 (Stock Quote: 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 (Stock Quote: 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 (Stock Quote: OIL), SPDR S&P Oil & Gas Exploration & Production ETF (Stock Quote: XOP) (which has a three-year return of over 22%), SPDR Oil & Gas Equipment & Services Fund (Stock Quote: XES) and the PowerShares DB Crude Oil Long ETN (Stock Quote: OLO) (up a slight 0.14% for the year).

While investing in certain ways can help you save money on home heating, consuming less is a good overall strategy for the long run. Check out MainStreet's look at the Least Energy-Efficient States to see how your state ranks!

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