Kuta Beach

Kuta Beach

Sunday, 21 September 2008

Investing in Oil Companies

With the recent collapse of Lehman Brothers, shock waves have hit the world markets. The All Ords is at 4700, which is very low. The price of oil has gone down from US$147 per barrel to US$90 per barrel. The price of petrol here in Australia is still high because the Australian dollar has depreciated. One Australian dollar used to buy US$0.98. Now it buys only US$0.80. I am happy that my mutual fund invests about 40 per cent in non-Australian assets because that will definitely boost my returns as the Australian dollar depreciates. I have always said that a home country bias is stupid, and now this currency depreciation proves it.

If I am going to buy shares in a company, I am thinking of buying an oil company. The reason why is because oil seems rather cheap at the moment, which would have depressed the stock prices of oil companies. Another reason is because it can provide me with a hedge against rising petrol prices. Petrol prices are by far my biggest expense. Jack at The Survival Podcast believes that this reduction in the price of oil is temporary and oil will keep going up. Many people who believe in the dominance of China and India believe that oil will continue to go up in the future. The real question then is whether supply can keep up with what is expected to be rising demand. The supply of oil is highly manipulated by cartels like OPEC. In general, suppliers of oil are criminals who control countries. They sell oil to us as if they are drug dealers taking advantage of our addiction. Many say that we are near Peak Oil and that oil producers are lying to us about how much oil they hold. I am scared about the opposite, which is Deep Oil. I am worried that there is plenty of oil in the world but the suppliers are hiding it so that they can extract as much money from us as possible. The Peak Oil versus Deep Oil controversy is far too complicated for me at the moment. Most of the articles on the Internet delve into conspiracy theories.

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