WITH oil prices reaching historic highs, spurred in part by the imposition of embargoes, is it any wonder that this commodity continues to be a hot topic of conversation? The price of oil has in fact risen by almost 10 per cent from the beginning of the year. Oil dependent nations such as Jamaica are already feeling the adverse effects of increased import costs. Indeed local gas prices are up by over $8.91 just over the past 10 weeks.

Oil is the key ingredient for global energy needs and will continue to power worldwide industrial and commercial expansion. It is also used in a wide variety ways such as cooking, heating, waterproofing and in numerous consumer products including skin treatments. It has proven to be a versatile commodity and exceedingly integral to our way of life, bordering on an absolute necessity.

Although China has recently revised its GDP growth target to 7.5 per cent from eight per cent for this year, the reality is that this rate is still phenomenal compared to the projected 3 per cent expansion of the US economy.

This country has become an economic powerhouse as it is the second largest and fastest growing economy in the world. It seems almost everything these days has a “Made in China” label. As a result of its tremendous growth, China is forecasted by the Energy Information Administration to represent 40 per cent of global oil demand.

Despite being a major oil producer, their consumption has outpaced their own oil-producing capacity since 1995. In 2008, China imported 97.58 per cent of their oil.

Iran is the world’s fourth largest oil producer and is OPEC’s second-largest producer after Saudi Arabia. As of 2009, it was producing an estimated 4.172 million barrels of crude oil per day. At 2006 rates of production, Iran’s oil reserves would last the country 98 years if no new oil was found.

In late January 2012 the European Union (EU) imposed an oil embargo on Iran, with foreign ministers ruling that no further oil contracts could be struck between member states and the Islamic republic, though existing delivery deals will be allowed to continue until July 2012.

The move takes place amid escalating tensions between the West and Iran over Tehran’s nuclear programme. With threats from Israel of a pre-emptive strike on Tehran, an outbreak like this would threaten oil supplies out of the Strait of Hormuz of which 40 per cent of the world’s seaborne crude exports flow. Countries like Greece, Spain, South Korea and Japan are among the nations that would be most affected. While an EU embargo on Iranian crude is already affecting global oil prices, it is the threat of an interruption in supply through the strait that is of greater concern to oil traders and economists.

North Sea Oil was first discovered in Norwegian waters in 1966. Shortly after that, the first Scottish fields were discovered. Scotland now produces more oil than Kuwait.

New technology is allowing them to drill at greater depths and in the wild Atlantic waters off the west coast of Scotland. Scottish and other UK companies are world leaders in these new technologies. Similar technology also allows them to extract more oil from previously abandoned wells. Therefore the remaining oil reserves could be as much as 60 to 100 billion barrels.

The US industry is the world’s largest economy and consumes the most oil globally.

Oil imports grew from 57.79 per cent in 1980 to 129.43 per cent in 2008. Comparatively production in 1980 was 10.81 Million barrels a day and in 2008 fell to 8.5 Million barrels a day.

Given the necessity of oil, it is a good idea for an investor to have an oil stock in their portfolio. Two companies to consider are Exxon Mobile Corporation (NYSE: XOM) and BP PLC (NYSE: BP).

XOM is a manufacturer and marketer of commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics and a range of specialty products. It also has interests in electric power generation facilities. The company has several divisions and hundreds of affiliates and affiliated companies. Their principal business is energy, involving exploration for, and production of, crude oil and natural gas and transportation and sale of crude oil. XOM pays a dividend of US$1.88 per share with a yield of 2.17 per cent. Over the last six months the stock has gained 20.97 per cent with a price appreciation of US$14.92. The closing price on March 5, 2012 was US$85.85.

BP is an oil and petrochemicals company. The company explores for and produces oil and natural gas, refines, markets, and supplies petroleum products, generates solar energy, and manufactures and markets chemicals. BP recently settled with residents and businesses that were affected by the oil spill in the Gulf of Mexico in the amount of US$7.8 Billion.

The company pays a dividend of US$1.92 per share and has a yield of four per cent. Year to date the stock has gained 11.93 per cent with a price movement of US$5.10. The closing price on March 5, 2012 was US$ 47.96.

All in all, oil is inextricably linked to our modern lifestyle. It would be prudent to invest in a commodity poised to appreciate in value due to global demand.

Deborah Vieira is a Wealth Advisor at Stocks & Securities Ltd. You may contact her at dvieira@sslinvest.com