Money flow into the Energy Sector could be HUGE

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Money flow into the Energy Sector could be HUGE

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WSJ writes, while energy-futures markets are more typically the province of producers and commodities-focused hedge funds, an oil rally that shows no signs of slowing is now exerting a pull on traditional money managers who run portfolios of stocks and bonds. Because commodities prices tend to rise alongside inflation, they can protect investment portfolios against its erosive effects. When combined with other commodities like copper and gold, energy is considered a decent hedge against inflation.
In one sign of investors’ interest, money has been pouring into funds that buy energy futures, accelerating just as inflation fears took center stage this fall. These funds have experienced four straight weeks of inflows for the first time since the spring, with last week’s $753 million the highest weekly total in five months.
Meanwhile, data from the U.S. Commodity Futures Trading Commission showed a rise in speculative buying of crude-oil futures and options in the week to Oct. 19. Bets on $100-a-barrel oil surged earlier this summer. This month, investors have put wagers on $200 oil.
Bottom Line: So far the strategy appears to be working. Inflation is rising but so are the prices of energy and many metals.

Our Take: So, a public E&P with the goal of finding and producing oil is off-limits to many investment funds committed to ESG principles. But fund managers see no problem in buying oil directly, even as it drives up the price in a manner that benefits the very E&Ps in which some refuse to invest. Forgive us if we’re unimpressed with Wall Street’s do-gooder ways.
Dan Steffens
Energy Prospectus Group
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