Fund managers have insisted supply and demand dynamics will soon start favouring oil and gas companies after the price of the commodity dropped further.
The price of oil, using the widely followed benchmark of Brent Crude, has plummeted from approximately $115 (£71) a barrel in June to roughly $85.
The fall has been met with a corresponding slump in oil stocks; UK-listed oil majors BP and BG Group both reported lower third-quarter earnings last week.
US investment bank Goldman Sachs added to the panic surrounding oil stocks by predicting the price of Brent Crude would fall below $80 a barrel in 2015 and that of West Texas Intermediate oil would fall to $70 – it is currently above $80.
Christopher Wheaton, manager of the Allianz Energy fund, said: “The oil market has looked at the astonishing growth in oil supply this year – up 1.6 million barrels per day, the fastest growth since the late 1970s – and weakening economic growth, and concluded that more supply [and] less demand equals lower oil prices.”
But global resources managers have rushed to the defence of oil stocks. They say most companies cannot afford to bring new supply to the market with prices so low, which will puncture worries about oversupply weighing on the price.
Benoit Gervais, manager of the CF Canlife Global Resource fund, said the price of oil was probably at its “worst”, with the current price approximately $85 and consensus forecasts all slipping below $90. But with the price between $85 and $90, “there is no growth in supply”.
He said: “For most companies, including some super-majors, if you want to grow you will need Brent at $90.”
Mr Gervais said much of the pressure on the oil price is because of new supply coming on stream from places such as the US. However, if companies started putting the current oil price into their budget forecasts, he suspected that the growth in supply would “dissipate” as companies realised new projects were not profitable at this level.
Though he expects the sector to remain volatile, he sees it as “definitely a good buying opportunity now”.
Mr Wheaton agreed the current price was not sustainable, partly because supply will be weaker than expected, but also because demand is likely to be stronger. He said the US’s shale oil wells run out much more quickly than conventional wells, requiring new projects to be initiated constantly.
“This rapid decline makes shale oil production very sensitive to the amount of cash that oil companies can generate and reinvest into new production, so there will be a slowing of growth in oil supply in 2015 if oil prices stay at or below the current price,” Mr Wheaton said.
Fears that global demand for oil is set to fall are misplaced, he added, pointing to International Energy Agency (IEA) estimates that 2014 and 2015 will see consecutive all-time highs in world oil demand, driven by “growth from emerging markets outside of the famous Brics”.
Even if the oil price remained at this level into 2015, according to Mr Wheaton it would be setting the world up for a subsequent “oil price spike” running into 2017.
