Oil’s a Good Short-Term Play Now. But What About the Long Term?

Brent crude oil futures are up 20% this month. The trigger has been obvious: Israel’s attacks on Iran threaten to take some oil offline. Less supply, higher prices. That makes oil a good hedge for investors who want to tinker their portfolio on the risk of a broader war.

But what about the longer-term more passive investors? Oil makes sense as a diversifier still, just like other alternatives in the off-chance stocks and bonds both disappoint. Just don't count on oil to significantly boost your wealth once inflation is factored in. An investment in oil has returned 0.7% on an annualized basis over the past 25 years accounting for the erosion of purchasing power due to inflation, according to Dow Jones Market Data.

Jim Reid, research strategist at Deutsche Bank, took an even longer horizon of the last 150 years. Oil produced a real return of only over 0.5% per annum in that period. Compare that to U.S. stocks that gained over 6.58% per annum and gold at 0.77% over the same period. Copper and wheat have delivered losses.