There’s an old saying that goes, “When oil moves, the world takes notice.”
Today’s world of investing is no different.
The World Bank recently sounded an alarm, suggesting that even a tiny tremor in the crude supplies due to escalating Middle Eastern tensions could have the oil prices gyrating wildly.
The possible disruptions range from a modest 500,000 barrels to a staggering 8 million barrels a day.
For those who slept through their economics class: when supply goes down, and demand remains unchanged, prices soar.
Based on the bank’s projections, we could be looking at prices dancing between $93 to a whopping $157 a barrel.
Now, while these figures might elicit a heartburn for your average Joe filling up his sedan, for investors, it’s an opportune time to put on the thinking cap.
So, how does one navigate these slippery slopes?
1. Diversify, but Wisely: The immediate knee-jerk reaction might be to invest in oil companies. While not a bad idea, it’s essential to remember that not all oil stocks are created equal. Companies with robust cash reserves and low debts will fare better in volatile times.
2. Renewed Focus on Renewables: An uptick in oil prices invariably leads to increased interest in renewable energy sources. Companies in the solar, wind, and electric vehicle sector could see a surge in demand, making them attractive investment propositions.
3. Hedge with Commodities: Oil isn’t the only game in town. Consider diversifying into other commodities that might also experience fluctuations due to geopolitical issues. Gold, for instance, has traditionally been a safe haven in uncertain times.
4. Take a Lesson from the 70s: The energy crisis of yore prompted nations to shore up their defenses against oil price volatilities. The diversification into expanded energy resources and the establishment of strategic petroleum reserves became a global strategy. Investors can mimic this on a micro scale by diversifying their portfolio and not putting all eggs in the oil basket.
5. Stay Informed: The situation in the Middle East is fluid. An investor’s best friend in such times is reliable information. Keep an ear to the ground, monitor updates, and be ready to pivot your strategy if required.
In closing, while the Israel-Hamas conflict’s immediate impact on the oil market has been minimal, it’s the potential for wider repercussions that have economists and investors alike concerned.
The projected baseline by the World Bank suggests an average oil price of $90 a barrel in the current quarter, dwindling to about $81 next year.
However, given the uncertainty, and the volatile nature of both oil and geopolitics, an agile and informed strategy is the name of the game.
In the words of Benjamin Graham, the father of value investing, “The investor’s chief problem—and even his worst enemy—is likely to be himself.”
So, stay informed, stay nimble, and remember, every crisis offers an opportunity for those willing to seize it.
Peter Burke
