What is an investor to do about the high price of oil?

On June 6, 2008 the price of oil closed over US $138.  The pain at the pump intensified immediately; gas jumped 6 cents a liter.  Goldman Sachs, the most active investment bank in energy markets, expects US crude to average US $141 a barrel in the second half of 2008. CIBC economist Jeff Rubin is predicting that the price of oil will soar US$200 a barrel by 2012.

We haven’t seen this kind of run up in the price of oil since the oil crises of the 1970’s. What should an investor do? Buy oil stocks?  Sell oil stocks?  Do nothing? Or?

I have concluded from what I’ve seen and read that the price of oil has entered bubble territory and will fall in the next few months. I do not own a crystal ball, so I won’t predict the future price of oil. However, I think the days of US$60 per barrel oil (a price seen only last year) are gone; higher oil prices are here to stay.  Since most aspects of our economy depend on oil inputs, this means inflation (the general increase in prices of goods and services over time) will increase.

So, what to do? I think investors should check their portfolios and make sure they own investments, which generally keep pace with inflation. Here are some types of investments which generally keep pace with inflation:

• Real return bonds
• Real estate
• Gold
• Commodities (oil & gas, metals, fertilizers etc.)
• Infrastructure (e.g. electricity and/or gas transmission and distribution, water utilities, toll roads, bridges and tunnels, ports)

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