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Investing in Oil

March 2005

While Crude Prices went up more than 60% over the past 12 months the S&P 500 rose a respectable 6%!

One explanation: We are not as dependent on Oil as we were during previous price shocks in 1974 & 1979.

S&P chief economist, David Wyss, notes that the average household now spends roughly 5% of its income on energy, vs. 8% in 1979. Energy costs now total 7% of GDP, half what they equaled two decades ago. For higher oil prices to have the impact today that they had back then, argues the chief economist of S&P 500, crude would have to surge past the $100 / barrel mark!

Some even suggest that higher oil prices have been a healthy headwind for the strengthening economy, allowing the Fed to be less aggressive and more measured in its rate hikes.

But if oil prices don’t retreat soon, probably will influence the estimates for GDP growth and projected gain of the S&P 500 for this year!

Oil stocks have already had a stunning run: The benchmark oil index rose 28% last year and is up another ~20% so far this year! Most of the easy money has already been made.

►Investors should think about weatherproofing their portfolios for an environment in which oil prices stay above $50.00 a barrel?

►A modest pullback in oil prices would hammer energy shares in the short term?

►Investors should lighten up in Sectors that tend to perform poorly when oil prices are high?

 

Energy à Stock Charts - By Market Capitalization (click here to go to charts): Exxon Mobil Corp (XOM), BP PLC (BP), Total SA (TOT), Royal Dutch Petroleum Company (RD), ChevronTexaco Corp (CVX), PetroChina Co Ltd (PTR), ENI SpA (E), The Shell Transport & Trading Company Plc (SC), ConocoPhillips (COP), Petroleo Brasileiro SA (PBR) ……..

 
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