Think before scratching itch to invest in oil
By John Waggoner, USA TODAY
Oil prices have been surging. You want to ride the wave, so you're thinking about investing in an exchange traded fund that tracks oil prices.
If you're thinking crude will be a-bubblin' because of events in the Middle East, here's some advice: Go to Las Vegas instead. You'll have lots more fun and may even marry a really fun rodeo clown.
You can make a good argument that worldwide economic gains can, in turn, push oil prices higher. If that's the case, however, you might be better served by considering a broadly based energy fund.
Any investment strategy based on the actions of Libyan strongman Moammar Gadhafi is, well, probably not a sane move. The man blamed the Libyan uprising on young men hopped up on hallucinogenic pills given to them "in their coffee with milk, like Nescafé." Tomorrow he might decide to move to Paris to work on his pancake collection. You just never know with people like this.
True, there is the chance that the uprisings by the people of Libya, Egypt and Tunisia could spread to other countries, such as Saudi Arabia. "That's the sky falling," says Tom Kloza, chief oil analyst for the Oil Price Information Service.
Some of that — about $15 per barrel, Kloza estimates — is already built into the price of oil, which closed at $97.28 a barrel Thursday. Fred Fromm, portfolio manager of Franklin Natural Resources fund, thinks the Libya premium is more like $5 to $10 a barrel, arguing that oil at $80 to $100 was pretty well supported by fundamentals before the Middle East uprisings.
At the moment, however, the loss of Libyan production — about 2% of the world's production — will have its biggest effect on Europe, and particularly, Italy. Libyan oil is light, sweet crude, meaning it has a low sulfur content and is easier to refine than most grades of crude.