With U.S.-Iraqi tensions giving oil prices an added boost, investors have been piling into mutual funds that hold shares of energy firms, according to data gathered for Money magazine's Small Investor Index.
Benchmark West Texas crude oil, which topped $22 a barrel in August, jumped another 5 percent last week to $23.43. Analysts attribute the surge to the U.S. Tomahawk missile attacks on Iraq, as well as to the United Nations' suspension of an agreement that would have allowed Iraq to begin exporting some 700,000 barrels of oil a day by the end of this month.Since oil prices began to climb in mid-August, investors have added $98 million to energy mutual funds, according to AMG Data Services of Arcata, Calif. By contrast, from July 17 to Aug. 14, investors withdrew $137 million from the funds.
Indeed, investors have responded quickly to energy price fluctuations all year. For example, in March and April, with the price of petroleum bubbling up to a five-year high of $25.34 a barrel, investors moved $416 million into energy funds. Then in May, when prices tumbled 18 percent, they withdrew $260 million.
Many energy analysts believe that Middle East political instability and winter's high heating bills will keep oil prices above $20 a barrel until spring.
"But then we'll probably see more oil production, as well as a greater reliance on natural gas in countries like China," said analyst Benjamin Rice of Brown Bros. Harriman in New York City. "That should push prices down to $18 or $19 a barrel."
Last week, the Money Index, which tracks the value of the typical investor's holdings, declined $415 to $63,873. Stocks lost $390, and bonds fell $35. CDs and money funds added $13. Gold slipped $2.