As Oil Prices Surge, Investors Find Ways To BenefitMay 4 | Posted by Andrew Burchett | Top Story
As oil prices continue to surge, consumers are getting hit harder at the pump with gas prices now edging closer to $4.00 per gallon. With supply disruptions in North Africa along with growing concerns that surrounding regions will quickly become affected, combined with the always growing demand for oil in emerging markets, it seems that high oil prices are here to stay, at least for 2011. However, it might not be that bad for investors looking for opportunities in the markets using the current situation to their advantage.
Foreign currency is proving to be one of the most attractive financial hedges with oil prices this high. Over the last 10 years, the inverse US dollar index has held a relatively strong correlation to the price of crude oil. This means that with each incremental cent added to price of a barrel of black gold, the US dollar has typically depreciated. In a net energy importing country like the United States, this isn’t too surprising. The US has a strong dependency on imported oil, sending large amounts of the greenback abroad and pressuring the value of the US dollar lower. Currencies like the Euro, Mexico’s peso, Canada’s dollar, and Russia’s ruble are all very attractive currencies now given the likelihood of a prolonged spike in oil prices.
Alternative energy source companies are starting to gain some traction in 2011. Should gas prices remain this high, green energy companies are set to prosper as consumers shift demand to cheaper alternatives. Solar power companies saw their stock prices jump after it was released that Total SA (TOT), one of Europe’s largest oil companies, offered to purchase a 60% stake in American solar manufacturer SunPower (SPWRA). If Big Oil is getting ready to commit itself to solar power for the long term, solar power may be undervalued now. With solar power ETFs recovering from their 2010 collapse, indexes like Market Vectors Solar Energy (KWT) are excellent places to start to get in on the action. Investors looking for more international exposure, Market Vectors is a top choice, with 32.9% of its assets in the highly competitive China solar sector, 17.3% in Germany, and 28% in the U.S.
With the driving season approaching and oil entering its annual peak season, increasing exposure to foreign currencies in heavy oil exporting countries will be paying off for investors. As the effects from the Japanese nuclear reactor disaster reverberate throughout the nuclear energy sector and solar power is strengthening its infrastructure and merging with powerful partners, internationally diversified solar power ETFs stand to gain.
Tags: Black Gold, Canadian Dollar, Crude Oil, Euro, Gas Prices, KWT, Market Vectors Solar Energy, North Africa, Oil, Peso, Russian Ruble, Solar Power, Solar Power ETF, SPWRA, SunPower, TOT, Total SA, US Dollar