What's pushing oil prices higher?

Instead of going crazy fretting over high gasoline prices, why shouldn't we invest enough in oil companies to hedge like the big boys do? If oil rises, we profit enough to fill our tanks. If oil prices fall, we lose on our stock, but we benefit by cheaper gas at the pump. Why curse Big Oil's "obscene profits" when you can participate?
-- Kevin P., Blue Springs, Mo.

We don’t usually comment about individual investments; there are plenty of “experts” out there more than willing to offer an opinion. But there’s no reason you shouldn't invest in oil stocks. As the saying goes, if you can’t beat 'em, join 'em.

Those lucky enough to have invested in these shares before the recent run-up in oil industry profits have done very well. Since January 2003, stocks of the major oil companies (Chevron, ConocoPhilips and ExxonMobil) are up 86 percent. Stocks of oil refiners (Sunoco, Valero, Murphy Oil, Hess and Marathon Oil) are up 222 percent. Those kinds of returns would fill up a lot of gas tanks.

But as with any investment there is no guarantee these stocks will continue to post big gains. At current prices, investors are assuming that oil and gasoline prices will continue to rise and that these companies’ corresponding profits will keep rolling in. If oil or gasoline prices pull back from current high levels, so could the stocks.

Many traders expect that to happen. Based on the bets being placed on the futures markets, the price of oil is expected to rise to a little over $80 a barrel by spring. But after that, traders are predicting prices will fall.

What's more, buying oil stocks can only provide you with a limited hedge against a sharp, prolonged rise in oil prices. True, your oil stock portfolio will likely continue to post gains. But at some point, higher oil prices will begin to have a much wider, negative impact on the global economy. If that happens, the profits you gain from investing in oil stocks may be more than offset by the harmful effects of rising inflation and higher unemployment.

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