LONDON (Reuters) - A tighter oil market in the second half of 2013 will boost some energy stocks, which have trailed the rest of the equity market though the rally, said Charles Whall, co-manager of Investec (LSE: INVP.L - news) 's $1 billion-plus energy fund.
Although investors have flocked to equity markets since the start of 2013, they have shunned energy stocks. Only basic materials equities have put in a worse performance.
Energy-focussed funds have averaged a more than 6 percent loss in the past year, but Whall's Investec Global Energy Fund - one of the sector's largest - has made returns of 4.93 percent, helped by an investment mandate that has allowed him to bet on stocks in Brazil, Russia and China that are excluded for others.
He believes the market is too bearish on the outlook for oil prices, which have fallen to around $102 a barrel this week as shale oil production drove U.S. reserves to record levels while demand from China was weak.
"The market is structurally tighter than people understand," said Whall, arguing that non-OPEC supply growth had been a "perennial disappointment" with project delays, geopolitical problems and unplanned outages in the North Sea.
He said that with OPEC started taking oil off the market mid-way through 2012, the market was significantly tighter on a seasonal basis than last year and will tighten "faster than people think" going into the summer.
Whall said that energy equities were trading as if the Brent crude oil price was at around $80 a barrel, whilst Investec expects it to average about $110 for the year. "The market is unwilling to value these equities on a higher oil price," he said.
"The view persists that we are in a short-term spike scenario, driven by financial speculation and non-fundamental market forces."
He also believes expectations for shale oil production are overinflated, arguing that shale oil will prove more difficult to extract than shale gas, and that China, India and Brazil will deliver decent demand growth.
Strong car sales in emerging markets pointed to sustained oil demand growth even if demand for industrial metals from leading consumer China took a hit, he argued.
The fund, which has $1.080 billion under management, is underweight the big integrated oil and gas companies, which have struggled to hit growth targets, and overweight service sector companies such as Schlumberger (Berlin: 44SA.BE - news) and Ensco .
To exploit greater demand for liquefied natural gas (LNG) in Asia he is holding Santos and Oil Search , whilst Gazprom is well-placed to benefit from increased demand for gas in Europe, he said.
"The price of gas in the winter will continue to be very high - most utilities have given up some flexibility in their gas-supply contracts so they have to balance their take in the spot markets," Whall said.
"The Norwegians helped out this year but next year they won't have the same flexibility."
yahoo.com
Although investors have flocked to equity markets since the start of 2013, they have shunned energy stocks. Only basic materials equities have put in a worse performance.
Energy-focussed funds have averaged a more than 6 percent loss in the past year, but Whall's Investec Global Energy Fund - one of the sector's largest - has made returns of 4.93 percent, helped by an investment mandate that has allowed him to bet on stocks in Brazil, Russia and China that are excluded for others.
He believes the market is too bearish on the outlook for oil prices, which have fallen to around $102 a barrel this week as shale oil production drove U.S. reserves to record levels while demand from China was weak.
"The market is structurally tighter than people understand," said Whall, arguing that non-OPEC supply growth had been a "perennial disappointment" with project delays, geopolitical problems and unplanned outages in the North Sea.
He said that with OPEC started taking oil off the market mid-way through 2012, the market was significantly tighter on a seasonal basis than last year and will tighten "faster than people think" going into the summer.
Whall said that energy equities were trading as if the Brent crude oil price was at around $80 a barrel, whilst Investec expects it to average about $110 for the year. "The market is unwilling to value these equities on a higher oil price," he said.
"The view persists that we are in a short-term spike scenario, driven by financial speculation and non-fundamental market forces."
He also believes expectations for shale oil production are overinflated, arguing that shale oil will prove more difficult to extract than shale gas, and that China, India and Brazil will deliver decent demand growth.
Strong car sales in emerging markets pointed to sustained oil demand growth even if demand for industrial metals from leading consumer China took a hit, he argued.
The fund, which has $1.080 billion under management, is underweight the big integrated oil and gas companies, which have struggled to hit growth targets, and overweight service sector companies such as Schlumberger (Berlin: 44SA.BE - news) and Ensco .
To exploit greater demand for liquefied natural gas (LNG) in Asia he is holding Santos and Oil Search , whilst Gazprom is well-placed to benefit from increased demand for gas in Europe, he said.
"The price of gas in the winter will continue to be very high - most utilities have given up some flexibility in their gas-supply contracts so they have to balance their take in the spot markets," Whall said.
"The Norwegians helped out this year but next year they won't have the same flexibility."
yahoo.com
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