From late 1998 through late 2000, the price of a barrel of oil soared from less than $11 to nearly $38, an increase of over 240%. Natural gas prices, too, have spurted.
Are further gains possible? Perhaps. Global demand for oil is soaring: the U.S. Department of Energy predicts world oil consumption will rise from 75 million barrels a day, in 2000, to 84 million in 2005. If this forecast comes to pass, greater demand may push up energy prices and energy companies’ stocks.
Moreover, natural resources have a low correlation to the broad stock market so they may prop up your portfolio when stocks sag. That’s what has happened so far this year and may happen again in the future.
How can you participate if prices and profits continue to rise? By buying stocks in companies that explore for, produce, deliver, or sell oil or natural gas. If you’d rather not pick individual stocks you can invest through a natural resources mutual fund. Most of these funds focus on energy but there are differences among them. Some natural resources funds specialize in major international oil giants. Others in this category favor smaller exploration companies. Still others invest in “energy services” companies that provide the drilling rigs and other equipment needed for exploration.