The fund house believes such a dismal assessment it too pessimistic and that investors may be overlooking one of the greatest potential opportunities in resource equities today.
Investors need to study individual companies and find those that are taking the needed steps to restructure their businesses, wrote Duncan Goodwin, head of global resources equity team, in a note to clients.
Shell’s acquisition of BG Group is one of the more noteworthy examples. The deal, when completed, will help realise cost synergies and give Shell access to a more efficient production base through BG’s assets in Brazil.
“Our holdings in Chevron, Shell and BG Group are significant positions, accounting for a combined 15.6% of our current portfolio. In energy as a whole, our conviction is increasing, with 54% of the fund invested in energy companies at the end of October, compared to a trough earlier this year of 35% at the end of February.”
Price rise?
Goodwin predicted that future global production will fall by 5.5-7.5 million barrels per day over the next 24-36 months. The global rig count has fallen by half just this year to 578 rigs at present.
He specifically referred to an annual decline in US oil production, possibly as much as 500,000 barrels per day.
“This marks a significant change for an oil source that acted as a determining factor on price trends in recent years.”
BSI Bank noted that the US Energy Information Administration (EIA) is now projecting US onshore production to be down for the first time since 2013. In addition, the EIA said that it expects Brent crude prices to average $75 per barrel in 2016.
“Our view is one of stable Brent crude prices moving toward the end of this year. On the equities side, downgrades have already taken place and valuations are looking attractive at present.”
Overseas Chinese Banking Corporation projected that Brent crude prices could stabilise within the $60-70 per barrel band by the end of 2016, an increase of 30-40% from this year’s levels.
