Fund managers expect oil prices to stay at elevated levels
Oil prices could stay at elevated levels as supply tightens, according to fund managers.
Last week Brent crude oil prices hit $120 a barrel after Iran threatened to cut its exports to the EU ahead of the EU’s proposed ban on them, which comes into force in the summer.
Mark Burgess, chief investment officer at Threadneedle, said he expected oil prices to stay at a similar level for the rest of the year.
He said: “We have recently had a close look at the energy sector where we expect the oil price to remain high, with Brent averaging $115-$120 for 2012 as supply remains tight, inventories low and geopolitical risks numerous.”
Mr Burgess added that these factors, combined with Saudi Arabia revealing it was targeting a $100 floor price, meant he was favouring oil explorers, producers and services firms.
The EU had previously threatened the world’s third largest oil producer with an embargo over Iran’s reluctance to reduce its nuclear capabilities, but this was seemingly pre-empted last week when the country’s state broadcaster Press TV reported that it has stopped sales to France, Portugal, Italy, Greece, the Netherlands and Spain.
This claim was later denied by the Ministry of Oil in the Iranian capital Tehran.
Michael Godfrey, co-manager of M&G’s £579.1m Global Emerging Markets fund, said it was doubly important to invest in companies with a sustainable business model, with oil prices likely to remain high.
“There could be a structural argument for oil prices to remain stronger for longer as the emerging world develops,” he said.
One company the manager is favouring is the Brazilian oil major Petrobras, as he said it has a “fabulous asset base and good production growth, but importantly they have a comparative cost advantage over their peers and are able to produce oil at a relatively low break-even price”.
However, Mark Harris, co-manager of the £66.1m CF Eden Global Multi-Strategy fund, said the outlook for the oil price varied greatly over multiple time spans.
“There are now pressures on the oil price to come back a little bit with the development of natural gas at extremely low levels,” he said. “There are short-term pressures in this area but looking at it long-term it is a good area and one we are looking to get into.”