Dennise Williams, Staff Reporter
MCDONALD
THE PAIN consumers feel at the gasoline pump can actually become an opportunity for investors to participate in the profits from the energy sector.
Dean McDonald, assistant vice-president for economic analysis and research at First Global Financial Services (FGFS) said, "A number of factors, namely international demand, will continue to drive the price of commodities higher in 2006 and beyond. In fact, the outlook is that oil price could reach $100 by the 2006 winter season."
The global demand for oil comes from countries such as the United States and China, he said. Both economies are growing at a relatively fast pace with China expected to grow by 9.5 per cent in 2006 and the United States by 3.5-4 per cent.
With respect to China there is rapid growth in private car ownership as its robust economic expansion fosters the creation of a newly emerging middle class.
In 2005 only 0.73 per cent of China's population of 1.3 billion people own a car and there is scope for major growth in domestic demand for motor vehicles. The implication is that world oil prices will be under pressure as this demand accelerates.
PRODUCTION CUT
Geo-political events have also caused concern about oil supplies, Mr. McDonald said. This is because the Organisation of Petroleum Exporting Countries is in fact near capacity and, therefore, concerns about supply are heightened with about 20 per cent of Nigeria's production being cut due to social unrest. Additionally, the latest stand-off between Iran and the United States over Iran's nuclear programme has resulted in an attempt to place sanctions on Iran, which could lead to a reduction in oil supplies by that country.
With respect to precious metals such as gold, hedge funds and central banks have been demanding this commodity as a hedge against the volatility being experienced in currencies such as the U.S. dollar and the Euro. Additionally the metal is a hedge against inflation.
Hedge funds have also been pumping money into oil futures given the factors mentioned, which is pushing up oil prices, he said.
SHORTAGE OF COPPER SUPPLIES
There is a shortage of copper supplies and it is expected that demand will outstrip supply by approximately 10,000 tonnes this year. This has driven the price of this metal to record levels this year.
These factors indicate continued rise in commodity prices given that global growth expectations are strong particularly for the Asian countries such as China and Japan and the pick up in growth in Europe, Mr. McDonald said.
In terms of participating in this energy boom, several local brokerage funds such as NCB Capital Markets, FGFS, and Mayberry Investments offer mutual funds that invest in oil, gas, coal and other natural resources.
But be aware that energy investing isn't for the faint of heart who want to make a quick dollar. The analysts at FGFS advise that mutual funds are for, "the investor who is investing for the long-term and can tolerate higher risk."
