Higher oil prices affect more than just the cost of gasoline. Oil prices also weigh on the stock market in general. Even though Big Oil stocks may gain from higher oil prices, sometimes the costs associated with higher oil prices weigh on other stocks.
Photo: nats, Creative Commons, Flickr
Companies that have to pay more to keep their machinery running, their distribution systems intact, and to meet their energy needs feel rising oil prices in their wallets. These costs can cut into earnings.
MSNBC points out that “higher oil prices, set off by disruptions in production in Nigeria, also weighed on the market.” This means that you should be careful of where you invest for now when it comes to the stock market (or it could be your chance to get good values!)
At the same time, though, the problems of the world oil supply are exposed, and this creates uncertainty in the stock market. Even though the protestors have finally left the Royal Dutch Shell (RDS-B) facilities, it is important to note that oil prices are unlikely to remain lower for long. With the summer driving season approaching, some areas in the U.S. (read: California) have already seen gas prices at right around $4 per gallon. This means that although ExxonMobile (XOM) may be down a little right now, its stock is likely to rise as oil and gases prices begin the summer climb.
However, if you are looking to invest in companies that offer a little more in the ethical direction in the category Big Oil stocks, you might try some alternatives to Exxon. They are cheaper, offer a decent value, and companies like BP (BP) and Chevron (CVX) are also investing in alternative energy.
Indeed, if you’re not squeamish about supporting Big Oil, now may be the time to buy Big Oil stocks as the price dips a little before demand increases again . . . or the next crisis hits.
Disclosure: I do not own any of the stocks listed in the above(BP, CVX, XOM), and oil company stocks do not make up any part of the mutual funds I invest in. However, I am considering purchasing BP shares.