“Every day the cost of living is increasing, thanks to the continuing rise in oil prices. The last straw for me was the big jump in my electricity bill. I don’t know how I’m going to survive these higher prices when my pay is not going up. What can I do to fight rising costs?”

Unfortunately it seems that there is no end in sight to the rapid rise in the price of oil. In July last year, the price of oil was just about US$70 per barrel, and current prices have blown past the US$145 per barrel mark. There have even been discussions suggesting that oil prices are heading to an unbelievable US$200 per barrel.

The rise in oil costs is negatively affecting consumers in many ways. One obvious instance is painful petrol prices. I’m secretly wondering if the gas station price boards can actually display prices over J$100 per litre!

Then there are the electricity bills that are getting higher than many of our other expenses combined. All industries which use oil as inputs such as tyre and paint manufacturers, and businesses that rely on high-priced petrol and electricity to produce and distribute goods are forced to increase the costs of their products.

What exactly is driving the dramatic increase in oil prices that’s causing this decrease in our standard of living?

To understand what’s going on with oil prices, we have to learn a little about the financial market for commodities. A commodity is a raw material that is used as an input in the production of other goods and services. Some common types are crude oil, natural gas, corn, wheat, gold, coffee and cattle; and they are bought and sold by large purchasers and producers on international commodities markets.

While there are legitimate buyers who require the raw materials for their operations, the market has evolved into one where commodity contracts can be traded by large investors who have no need for the specific goods. These persons seek to profit by speculating on the value of the contracts, and the future prices of the commodities.

Mark Croskery, president & CEO of Stocks and Securities Limited, speaking recently at a seminar on investing in the global financial markets, outlined some of the factors that affect oil prices. Croskery explained that the forces of demand and supply influence prices, as there is uncertainty about how much oil reserves exist for the future, and how well current supply can meet the increasing demands of growing economies like China and India. He confirmed that high-consumption nations will continue to pay more for oil as their needs dictate.

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Croskery also examined the role of speculation on the price of oil. Savvy investors will always seek to ensure that their investments provide returns ahead of the inflation rate, and the current oil market provides ample opportunity for large windfall profits. Recently, billionaire investor George Soros remarked that speculation was primarily responsible for the continued rise in oil prices. He claimed that massive increases in energy and food costs and the resulting recessions in international economies would eventually lead to a reduction in oil prices.

Other factors contributing to the oil price boom include geo-political risks like war and terrorism in oil producing countries such as Iran and Nigeria, and concerns about negative weather occurrences such as hurricanes in Mexico, Croskery continued.

So now that we know why oil prices are going up, what can we do about it? We’ve all seen and heard the reports that tell us how to lower our petrol and electricity costs. Experts advise us to car pool, drive less, get fuel-efficient cars, service our cars to lower fuel consumption and install energy-efficient appliances and light bulbs at home.

But how about taking advantage of rising oil prices? Is there a way to make money from the growth of this commodity market?

The average person can participate in the commodities markets in various ways. Croskery explained that smaller investors can partake in the oil boom through investments in exchange-traded funds or mutual funds which buy into commodity contracts, while larger investors with over US$40,000 to invest can directly buy contracts on commodity futures exchanges through an international brokerage.

It’s important to note that the trading of oil as a commodity is risky as the prices are very volatile and move up and down dramatically. However, because the scenario of rising oil prices is constantly in the news, it has increased interest in the trading of other raw materials and has opened up the commodities markets to new players.

So if you’re looking to expand your investment horizon, then international commodity trading might just provide you with a viable ‘alternative’ way of making money.