We’ve been tipping oil as a great investment in MoneyWeek for some time. But until recently, we’ve been ploughing a pretty lonely furrow. The general consensus among commentators in recent years has been that oil prices will fall to around $45 a barrel, despite all evidence to the contrary. But since the start of this month, the International Energy Agency (IEA) has warned of a supply crunch in 2012, the price of Brent Crude has soared to close to $80 a barrel, and suddenly it seems that everyone wants to know where the oil’s going to come from when supplies start dwindling. Deutsche Bank has now hiked its long-term oil price forecast to $60 a barrel from $45, while other City forecasters are falling over themselves to re-rate oil majors such as Royal Dutch Shell.
“Oil looks extremely tight in five years’ time”, warned the IEA last week. Demand is expected to rise by an average of 2.2 million barrels a day (mbd) next year, fuelled mainly by emerging markets. In China alone, demand is set to rise from 5.6mbd to 15 million barrels by 2030. The trouble is, supply will be hard-pushed to meet this need. The IEA reckons Opec will be unable to keep up with demand, with production falling by 2mbd in 2009. Continued growth of non-Opec production is “very challenging” and likely to plateau after 2010, says ExxonMobil chief executive Rex Tillerson.
That’s bad news for OECD countries, including Britain, which by 2030 will have to import about 66% of their oil, compared with 56% today. But it should be good news for oil company profits – and for their investors. Independent financial adviser Brian Dennehy of Dennehy Weller & Co said as much in his latest TopFunds Guide, says Jeff Prestridge in The Mail on Sunday. “While everyone fusses about alternative energy, mainstream energy is being overlooked. It’s a superb inflation hedge and an ideal asset diversifier.” So which funds offer the best exposure?
Luxembourg-based Blackrock MLIIF World Energy Fund (tel: 0800-445522) and Investec Global Energy Fund (020-7597 2300) both give broad exposure to global energy stocks. We like the latter in particular; it has large holdings in oil majors Statoil and Shell, plus exposure to Canadian tar sands play Opti Canada and the world’s main player in coal-to-liquids technology, Sasol. It’s up more than 100% since launch, over two years ago. For exposure to commodities as well as energy, you could try First State Global Resources (about 15% invested in the energy sector) or JPM Natural Resources (nearly 30% invested in energy).