The Gulf oil disaster killed or injured dozens of people, thousands of animals, and the economy of an entire region. Nonetheless, there are investment implications arising from this incident that cannot be ignored by serious investors such as pension managers and prime brokerage. You might even see hedge fund marketing specifically geared towards trading in this arena. Here are a few ideas that applied to the Gulf disaster, and may come into play again if another drilling mishap occurs:
- Cleanup Companies: Billions are being spent on cleanup of the shoreline and tidal areas contaminated by oil. British Petroleum and its partners and insurers will foot the bill for this cleanup. Investors look to leading remediation companies who are most likely to receive contracts from BP.
- Oil Price Fluctuations: Depending on the current news reports, oil prices may trend strongly up or down, a perfect environment for nimble traders. Futures and options on crude are a popular way to play these price swings, but you can also invest directly in oil and oil service companies.
- Insurance Carriers: Insurers and re-insurers may take a short term hit to earnings when oil spills occurs. But remember, they will adjust rates and probably be fine in the long run.
- Shipping: The shipping industry will be affected by a sudden drop in supply. Rates may change, and in particularly bad situations, contracts for new tankers and crude carriers may be postponed or cancelled, affecting the shipping and ship-building industries directly.
- Drilling Companies: Expect their costs to rise and their revenues to decline due to increased scrutiny and decreased new drilling. In the Gulf disaster, it was apparent that drillers bend the rules to shave expenses. Now, with the glare of public scrutiny upon them, such behavior will be harder for drillers to get away with. Weaker players may even exit the industry, which in the long run will benefit the strongest companies.
- Law Firms: You can expect plenty of litigation arising from an oil spill. Many law firms are private partnerships, meaning that investors will need to resort to vehicles such as private placements to participate in any industry upswing.
This is just a sampling of the different investment opportunities that arise in the face of oil-drilling accidents. To invest in this arena requires you to be nimble and shrewd, as short-term events can have an outsized influence on investments. Remember to diversify your risks and to practice sound money management techniques before chasing investments arising from an oil spill.