Just a month ago oil surged to its highest price in three years, and some investors were wondering if crude was again on its way to $100 a barrel.
Instead, the price has tumbled to around $65. Mark Hackett, chief of investment research at financial services firm Nationwide, said the worst of that volatility might be over, but that investors should watch out for rough periods for oil and other commodities in the months ahead.
Q: Oil prices are somewhat volatile anyway. Has the recent period been worse?
A: There are so many moving parts right now that I'm not particularly surprised by the volatility. Three of the major incremental players in the market right now are Saudi Arabia, Iran and Russia. If you think about the relationships between those countries, it's relatively tenuous and it's not surprising you'll see some degree of breakdown.
Q: What's next?
A: It seems unlikely (the production) agreement can persist. So many countries need prices to go higher. In terms of the balance between upside and downside risk, we think most of the risks fall on the downside. Oil companies are doing just fine at $65, however, and they would be doing fine at $60. We think a lot of the real volatility is going to take a step back at this point.
Q: What are some good ways for investors who want to be involved in commodities to hedge their exposure?
A: The natural hedge is owning consumer companies. If oil prices go down, the consumer spends money on everything else. Consumer discretionary companies benefit twice in that a lot of them are hotels, casinos, entertainment companies that do much better when oil prices go down. An airline does much better financially. Because prices start coming down, people travel more.
