View more on these topics

Market weighs up the cost as oil prices jump

As the wave of Middle Eastern protests arrived in Libya, the country’s long-standing ruler Colonel Muammar Gaddafi cracked down on the population last week with a brutal show of force.

This prompted energy companies to halt production in Libya, the world’s 12th-biggest exporter of oil. These included Repsol, Spain’s biggest oil and gas company, and ENI, Italy’s state-controlled oil and gas group. Others, including Royal Dutch Shell and BP, evacuated expatriate employees.

As a result of the turmoil, Brent crude jumped to $119 a barrel on Thursday, a level last seen in August 2008. There are concerns the price could go much higher if the protests spread to Kuwait or Saudi Arabia.

There are upsides and downsides to rising oil prices for investors. Those who have a big weighting in natural resources funds are likely to benefit but companies that are heavy energy users will suffer.

Adviser Fund Index panellists are concerned about the impact that rising oil prices will have on inflation.

Graham Toone, head of investment research at AFH Independent Financial Services, believes everyone should be concerned about inflation. He says: “When oil prices rise, it is usually associ- ated with an economic boom but this time it is the opposite. This price jump will have a detrimental impact on inflation.

“The expendable income of an average family will shrink as fuel bills rise.”

Toone says fund managers involved with natural resources have been quieter about the oil price rises in association with the Middle East than he would have expected.

He says: “We have a small amount of direct exposure to oil with holdings in Shell and BP but we have not heard any comm- ents from fund managers who deal with that area. Everyone is obviously keeping a keen eye on events.”

However, oil price rises are benefiting some investors. James Calder, research director at City Asset Management, is monitoring specific natural resource funds that have been performing extremely well.

He says: “The one we hold is Investec global energy fund, which is basically a play on oil prices. For obvious reasons, it has been doing very well over the past few days.

“Before the trouble kicked off, we had been noticing strong performance, even during the time when oil analysts had been bearish on its future prospects.”

Calder notes there is a lot of conversation focusing on gold alongside the rising oil prices. He says: “Gold is a safe haven and I think it has got to the stage that it is almost seen as the currency of the world. Even when people are not happy holding US dollars, they will still hold gold.”

Most natural resource funds will contain a mix of energy stocks. Gold plays a partic-ular role as it is often seen as a hedge against global uncertainty.

Recommended

MetLife agrees 10-year contract with Capita

MetLife has agreed a 10-year service contract with Capita as it seeks to expand its presence in the UK retirement and investment market. A spokesman say the deal, which is an extension on an initial agreement signed in 2007, demonstrates MetLife’s commitment to the UK market. MetLife UK managing director Dominic Grinstead (pictured) says: “The […]

2

Euro ruling to bring massive shake-up

The UK insurance market is preparing for radical reform after the European Court of Justice ruled gender pricing for insurance products will be banned from December 21, 2012. The ruling follows an opinion from advocate general Juliane Kokott last year that using gender as a risk factor when pricing insurance is discriminatory. Pension provider AJ […]

Bad practice

Experts say DB Mortgages’ irresponsible lending was the side-effect of a market too willing to sacrifice standards for a bigger share. Paul Thomas reports

1

TSC launches inquiry into BoE accountability

The Treasury select committee has launched an inquiry into the accountability of the Bank of England. The new regulatory structure proposed by the Government will see an considerable increase in the power of the Bank including it taking on the monitoring of financial stability and prudential regulation. TSC member and Conservative MP Mark Garnier says: […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com