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Oil Price Shock Coming?

14 June 2010 6 Comments

A number of storms are forming that can likely push the price of oil up despite a continually deflating economy.  A number of trends and investing experts that I either subscribe to or read to believe that an oil price shock is coming.  Such a move in oil higher would put a high stress on the already-strained consumer and the economic recovery.

What might the catalysts be for an oil price shock?  Well, we already have the BP oil spill in the Gulf.  The policies that are enacted based on populist anger (justified anger) and leaders looking for some political points might be very dangerous to a weak economy.  The six month moratorium on offshore drilling will undoubtedly have an impact on oil supply and possibly the price as well.  This story isn’t over yet.

Also disturbing are the events in the Middle East.  Currently, Iran seems bent on escalating tensions with Israel and is sending “aid” ships to the Gaza Strip in response to the ship boarded by Israeli’s last week.  A military conflict in the middle east will have an impact on prices as well.

It might be wise to have some investments hedged to the price of oil.  As oil screams higher, companies that have exposure to the price of oil will likely see their stocks soar similar to the period when oil hit $147 / barrel in 2008.  Weirdly, for now, people view higher oil as an indicator of a recovery, but if we hit $100, it’ll most likely quickly become a negative on the economy.  While oil companies will profit, consumers will get killed at the pump.

Yet another story to continue to watch unfold.

6 Comments »

  • Cchan said:

    When do you think the oil shock will hit?

  • 20smoney said:

    Predicting the timing is near impossible and often times big trends are only identifiable in hindsight. Don't put all your eggs in one basket, but if you think such a trend might materialize, consider slowly moving into positions that might benefit.

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