 |
Investing in Oil in the Face of Terrorism |
|
|
Submitted by Janeane Carnagie
| RSS Feed
| Add Comment
| Bookmark Me!
Terrorist attacks threaten the security of nations and create an atmosphere of uncertainty. These threats impact stocks and commodities markets around the world and make investment decisions very difficult, even for the experts.
So what can average investors do? First, they should ask themselves what the likelihood is of a major terrorist attack. Then, they should determine whether their portfolios are hedged sufficiently with oil-related investments that would increase in value should a major terrorist attack disrupt oil production and distribution.
"One of the critical issues we face with oil security is its transportation," said Roger L. Cory, president of Mammoth Resource Partners Inc., a Kentucky-based oil and gas exploration company. "Our oil transport system is a worldwide network. It's practically impossible to secure it all and one soft target for terrorists can create significant disruptions."
Mammoth Resource Partners released a lengthy report detailing the vulnerability of this industry to terrorism. The report warns that the "oil transportation system provides an endless array of possibilities for the terror networks to exploit."
Oil wells, drilling platforms, loading terminals, ports, tanker ships, storage tanks and refineries are all prime targets. The 200,000 miles of pipeline in the U.S. and the 10,000 miles of pipeline in Saudi Arabia are particularly vulnerable, especially as most of the pipelines are above ground and poorly guarded, according to the report.
Straits and canals around the world also can be terrorist targets. More than 6,000 oil tankers travel through the Bosporus annually, and 80 percent of all Persian Gulf oil - 40 percent of the world's oil production - travels through the Strait of Hormuz.
The Ras Tanura complex in Saudi Arabia is an example of the precariousness of the situation. According to the Mammoth report, "Experts estimate that a single aircraft flown into the Ras Tanura could disable it indefinitely and create an instant oil price spike of $80 to $100 per barrel." Current prices are around $60 per barrel.
What does all of this mean for those who want to invest in the oil industry? Investors should be cautious, Cory says. Buying stock in multinational companies may not bring much return because you are investing in a company, not in oil. Since natural resource mutual funds are diversified, their oil holdings may not be sufficient to return a decent profit. With oil futures and options, there is greater risk. Timing is everything; being off in your calculations by just a few days could cost you dearly. And, the professionals know that 80 percent of all options are worthless when they expire.
Oil and gas partnerships - in which investors own a percentage of the resources extracted from the wells they funded - provide a middle path between low- and high-risk investments.
|
|
|
|
|
LinkedIn Recommendation:
 Martin Connell - President at Coupons for the Hungry, LLC - Teo has an amazing grasp for technology and social media. I believe he could build just about anything when it comes to programming data information and integration systems. Some of his recent programs and systems are truly groundbreaking. It is just a matter of time before his name is going to be uttered in the same breath as Google and Microsoft. Keep up the hard work Teo! - December 15, 2009, Martin was a consultant or contractor to Teo at Net-Teams, Inc. |
|
Featured [Investing] Articles:
|
|
