Oil price hits $70 per barrel - How to protect yourself

April 15, 2006

The price of oil is currently at record levels ($70 per barrel), thanks to all the uncertainty over Iran’s showdown with the UN Security Council.  Further risks include Venezuela’s new oil privatization policies, as President Chavez claimed the country’s right to take over two small oil fields in late March. Finally, the violence in Nigeria is causing continued alarm and a chronic reduction in their output. And let’s not even talk about Iraq, where oil production is still below prewar levels.

In response, China has been pulling out all stops to find alternative sources of energy, and decrease their reliance on Middle East oil. They recently signed a trade agreement with Russia to build power lines to supply more electricity, ramping up from 3.8 billion kilowatt hours by 2008 to 38 billion kilowatt hours by 2015. This is in addition to Russia’s promise to build a natural gas pipeline to China, and help China build 30 more nuclear reactors over the next 15 years. As we reported last week, China also is negotiating with Malaysia to increase energy development in the South China Sea.

What It Means:
Although many try, no one can realistically forecast what the future price of oil will be. In response, China is using every means available to reduce its reliance on Middle East oil and diversify their risk.

Action Steps:
You should diversify, too. As you add oil based mutual funds to your portfolio, think about other ways you are reliant on oil, and how it would affect your lifestyle if prices continued to stay high, or rose. Think about selling that SUV or truck, downsizing your home, moving closer to work, and other ways to reduce your reliance on energy without seriously compromising your lifestyle.

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