Sonntag, 24. September 2017

  • Pressemitteilung BoxID 159269

Commodities: A real stock-picking year in the energy market

An extract from Strategic Solutions

Frankfurt, (lifePR) - During 2008 and 2009, we saw the biggest oil demand pullback in history, as the credit crunch slashed oil consumption by more than three million barrels per day (bpd) - 3.5% of the market. However, OPEC's response of turning off the taps for three million barrels per day of supply brought the oil market back into balance, and the factors which drove oil to US$147 in 2008 are still simmering in the background. We believe that the energy market has reset, giving investors an opportunity to participate in the tightening cycle once more.

Incremental demand should erode OPEC spare capacity

Looking out over the next couple of years, there is precious little extra oil coming on-stream outside OPEC. With a five to ten year lead time on large oil and gas projects, we have relatively good visibility on new sources of supply, and there is a gap. A survey of the international non-OPEC project pipeline by Credit Suisse suggests that between now and 2014, the new projects will struggle even to offset reservoir declines in existing production.

This leaves the ball squarely in OPEC's court. For the last couple of years, OPEC has shown surprisingly good discipline regarding its management of production volumes. Saudi Arabia has led that campaign as the largest producer, but also the owner of the largest spare volumes in OPEC. The Saudi Arabian Minister of Petroleum recently described US$75 as the 'perfect' price for today's producers and consumers, suggesting that in the near to medium term, the oil price could stay in the US$65-85 range if Saudi Arabia succeed in this strategy. If Saudi Arabia is able to keep the ambitions of Iraq within a coherent OPEC framework, we should see an orderly reintroduction of OPEC spare production into the market over the next two years in response to higher demand, rather than flooding the market. Of course, this extra oil also means that any strength in demand is unlikely to lead oil prices too much higher in that time frame either.

Where does that demand come from? China is at the centre of the picture. Its huge programme of stimulus lending saw oil demand surge 7.7% in 2009. Even taking into account a moderation in the stimulus effect this year, the International Energy Agency (IEA) currently sees Chinese oil demand growing by another 4.7% in 2010. Other parts of the developing world are slaking their thirst for oil too, with the Middle East and Latin America helping non-OECD oil demand to grow by 4.0% in 2010.

The more challenging question lies with the OECD. Developed world oil demand is expected to be flat in 2010 year-on-year. Last year it fell 4.4%, but the nascent recovery is gradually feeding through to the oil market. Urbanisation and the rise in living standards mean that growth in non-OECD demand for oil is largely a given, but without those powerful trends in the developed world we are dependent on economic recovery to drive demand for oil there.

In the longer term, a sideways move in OECD demand should not concern oil price bulls. ExxonMobil's recent Outlook for Energy: A View to 2030 includes a chart of energy demand showing the relentless upward path in energy demand that the non-OECD is set to chart. Put in the context of a fifty year trend to 2030, the credit crisis appears as a minor bump in the road.

Natural gas: a poor relation

What about natural gas? Unlike OPEC, there is no gas cartel to defend against low gas prices. Gas has really been the poor relation over the last year, trading at an even smaller fraction of the oil-equivalent price than it normally does. There has been a long-term structural change in the natural gas market: the opening up of hundreds of trillion cubic feet of commercially viable shale gas reserves in the US. By cracking the code of how to exploit an enormous and well-known but previously uneconomic resource, US natural gas exploration and production companies have transformed the profile of the global gas market. In fact, the companies have perfected the technique of drilling shale gas wells to such an extent that the economics of some shale gas fields are better than many of the existing conventional fields. This suggests that US gas prices are unlikely to return to the peak levels we saw in 2008 for any sustained period of time in the future.

In the absence of clear commodity price momentum, 2010 is turning out to be a real stock-picking year in the energy market. On the oil side, we are investing in companies able to grow earnings in a range-bound commodity price environment by growing their production. Among the natural gas companies, we are focusing our investments on the lowest cost producers. We are also seeing opportunities among the oil service companies, especially those benefiting from the steady flow of orders from US shale gas and oil, the Middle East, Russia and particularly Brazil.

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