Rising oil prices aren't all bad

No-one likes paying more for petrol, but there are economic and environmental benefits

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Oil has hit a nine-month high and unleaded is approaching (or already over) $1.50 per litre in some parts of the country. That news has some people worried that high petrol prices will curb consumer spending and put a halt on our fledgling economic recovery.

It's true that high petrol prices force consumers to cut back on spending that could help the economy. But high oil and petrol prices aren't all bad for the economy. Another spike in oil prices may lead to even more drilling and increased economic activity in some parts of the country.

More production

High oil prices help make domestic production more economical and should further our production boom. Hydraulic fracturing costs have fallen significantly (not withstanding considerable community disquiet) in some places, and oil priced at more than $100 per barrel makes it more economical to drill using fracking. Ultra-deepwater rigs alone can cost rig owners more than $500,000 a day, so explorers need high prices to absorb the risk associated with this expensive drilling. All of this economic activity is made possible by the high price of oil.

If course, it's a double-edged sword. On one side, drillers which are profiting from expanded production will expand drilling, hire more workers, and generate more profits as the price of oil rises. If you're one of those workers, or investors, you're happy the price of oil is going up.

On the flip side, consumers don't have extra money to throw at the petrol pump each month with the economy recovering slowly.

In the end, there are positives and negatives to high oil prices depending on where you're sitting. Just don't think it's all bad.

A new focus on alternatives

Whether you're a fan of natural gas, biofuels, wind, solar, or any other alternative energy source, you should be happy about the rising price of oil. When oil is cheap, alternatives are the last thing consumers and politicians have on their minds. When oil goes up, suddenly the urgency to find alternatives increases.

Whether it's natural gas exploration or solar and wind farms, the alternative energy industry likes high oil prices.

These alternative energy sources are still relatively young in their development, and rising oil prices will help them get more funding and be more competitive with oil-based alternatives.

Some consolation at the pump

This may not be a consolation for everyone struggling with higher petrol prices, but there are significant portions of the economy that improve when the price of oil rises. There are also plenty of investing opportunities.

If you are looking for ASX investing ideas, look no further than "The Motley Fool's Top Stock for 2012." In this free report, Investment Analyst Dean Morel names his top pick for 2012…and beyond. Click here now to find out the name of this small but growing telecommunications company. But hurry – the report is free for only a limited period of time.

More reading

The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool's disclosure policy.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »