Oil Prices – The Next Crisis?

There is a growing fear in relation to the increases in oil prices and the effect on disposable incomes, business costs, the economic cycle and the fragile global growth. If this trend continues the current fragile economic recovery could easily be derailed and would be a contributory reason for increases in inflation

Oil prices have risen to all-time highs in euro and sterling terms recently and are fear is that we will see prices last seen in 2008 (approaching the $145 – $150 per barrel) caused by tensions in the Middle East and especially pertaining to Iran. The sanctions against Iran have already caused supply shortages which are a contributory factor lifting oil prices.

Mervyn King also pointed out that the rise in oil prices was not just a result of geopolitical tensions and suggested the latest increase is the impact of quantitative easing i.e. as the supply of paper money is increased, its value will fall relative to alternative stores of value.

A shift in the balance of global growth toward the emerging world is also among the possible causes of the spike in oil prices.

How long prices could stay high is expected to depend principally on Middle Eastern politics. Although, I am hopeful that prices will not stay very high for long assuming this is driven purely by geopolitical tensions in the Middle East.

If you are seeking protection from high oil prices, you could buy oil stocks. I personally, don’t advise making financial decisions by leaping from one purchase decision-based on fear to the next. I believe asset allocation, a financial plan and effective investment management with a total return bias to be a more suitable approach. Think about your time horizon, your risk profile, your aims, goals and planned strategy.

Any questions contact me – welshmoneywiz@virginmedia.com

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