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Can your portfolio profit from an oil price spike?

What: Hostilities in Iraq continue to intensify with President Obama announcing the US will send around 300 military advisors to help the besieged Iraqi government. Obama has also left the door open on undertaking “targeted military action”.

So what: Iraq is the second-largest producer of oil within OPEC and insurgents are targeting control of the nation’s oil supplies. This has the potential to cause a serious oil price spike. Already the oil price has climbed to a nine-month high, however that is nothing compared to the rally which could occur if the situation in Iraq gets out-of-control.

Now what: The rise in the oil price is a boon for producers who have the volumes available to immediately sell into the spot market. Risk averse investors may prefer to buy the larger, diversified and well established players such as Oil Search Limited (ASX: OSH). However investors prepared to step-out along the risk-reward curve, and buy more highly leveraged players could consider turning their attention to Beach Energy Limited (ASX: BPT), Senex Energy Ltd (ASX: SXY), Horizon Oil Ltd (ASX: HZN) and AWE Limited (ASX: AWE).

3 even better opportunities

Investors might need to act fast to position their portfolios before the oil price spikes higher but there is also a long-term trend at play here too! Limited oil supply and growing demand mean oil prices are likely to rise over time. Position yourself to profit from this trend now, with The Motley Fool's brand-new FREE research report, "3 Oil Stocks to Send Your Portfolio Gushing Higher".

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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