As oil hovers around $50 a barrel, hedge funds and other speculators aren’t the only ones betting on rising prices.
Individual investors also are chasing after costly crude, based on the dollar flow into stock funds that invest a majority of their assets in oil and other natural resources.
So far this year, the estimated net flow into those funds is about $2.88 billion, according to fund tracker Lipper Inc.
That compares with a net inflow of $820 million last year, and a net outflow of $55 million in 2002.
“You have a combination of factors at work here,” said Don Cassidy, a senior analyst at Lipper.
“One is specifically the movement in oil and gas prices and people thinking about that.”
Indeed, large speculators have increased their bets on crude oil prices, driving up the price.
The question for individual investors is whether they are setting themselves up for the fall or playing the market smart.
The good news is that several of the largest mutual funds that focus on investing in energy and natural resources are outperforming the benchmark indexes this year.
Those include the Pimco Commodity RealReturn Strategy and Vanguard Energy funds.
Net inflows as a percentage of their assets is up 16.2 percent and 7.3 percent, respectively, as of June, according to fund tracker FRC.
Still, stock investors who stand to benefit from higher oil prices are in the minority.
“It’s good that there are ways they can participate in energy price increases, which certainly helps them offset some of their personal expenses,” Cassidy said.
Most consumers have been hit in the pocketbook this year.
Higher energy prices have a ripple effect on the economy, inflicting plenty of damage on critical areas such as consumer spending.
Major oil stocks – such as ChevronTexaco and ExxonMobil and – are up eight and 10 and eight percent for the year, respectively.
The news that oil prices, which have been setting a string of record highs, fell yesterday was a welcome reprieve for most investors.
The October crude futures contract retreated to close at $46.05 a barrel, marking the first two-day decline in a month, according to Bloomberg data.
The September contract fell from a record $49.40 on Friday on reports that violence in Iraq had subsided.
Oil prices have risen more than 40 percent this year from a global economic recovery and concerns about supply disruptions from Iraq and elsewhere.
Many analysts believe the U.S. economy could still be jolted by oil prices above $50 per barrel.
“Oil prices will continue moving higher until they get to that point where they kill demand,” said Peter Beutel, an energy analyst at Cameron Hanover. “As we move from here until end of year, it’s going to increase.”
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Slick money
Mutual funds that have jumped on the bandwagon of rising oil prices that have seen solid gains in shares of major energy companies. How some benchmarks have preformed:
ExxonMobil
Close 1/2/04: $40.63
Close 8/23/04: $44.99
Up 11%
ChevronTexaco
Close 1/2/04: $85.89
Close 8/23/04: $93.12
Up 8%
Oil service index
Close 1/2/04: 93.57
Close 8/23/04: 105.33
Up 13%