How to make the most out of Rising Crude Oil Prices in 2011?
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Varun
Mar 8, 2011, 8:56:08 PM3/8/11
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The political unrest and revolution in Libya are sparking the current price spike, but additional factors -- such as a growing world population, the industrialization of India and China and the surging ranks of the middle class in emerging markets -- will also keep demand high as supplies tighten worldwide. That will boost oil prices over the next year, according to S&P mutual fund analyst Michael Souers.
"We've got oil supplies threatened or potentially threatened at a time when demand is potentially increasing," says S&P equity analyst Stewart Glickman, who covers oil services and drilling. "The geopolitical risk has been contained for some time, but now people feel that it may not be contained."
Glickman says it's also getting increasingly harder for oil companies to find new supplies. As the capacity of known oil fields diminishes each year, that leaves the riskiest and most expensive fields left to drill. For example, deepwater drilling permits in the Gulf of Mexico are more expensive and come with added safety costs, especially after BP's (BP) catastrophic Deepwater Horizon explosion and oil spill last year.
All of these factors mean oil could remain pricey for a long time, but at the very least, they suggest further upward pressure on oil prices in the short term. Analysts have already targeted$120-a-barrel oilas a major milestone, but some are suggesting that even $200 oil may not be far off.
Pain Relief for Oil-Price-Pressured Portfolios
But higher oil prices aren't necessarily all bad news for investors: They also can create new opportunities. Investors might be able to find some pain relief for their portfolios with investments that benefit from oil's steady increase.
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