Why I’m invested10 Sep 2020 16:59
Looking forward
Now that oil prices have recovered from recent lows, many fund managers are more optimistic than they were during February or March and predict further price increases.
“In early April we were extremely bearish because there were so many uncertainties about Covid-19, especially its effect on emerging economies,” says Michel Salden, head of commodities at Zurich-based Vontobel Asset Management, whose fund takes active positions on commodity futures curves.
“Then we became much more bullish, because we thought the market was too pessimistic. Apart from air traffic, congestion is accelerating quicker than we expected. But we have to be very aware that there might be a second wave of the virus. The introduction of a vaccine would make us more bullish on oil, or a delay to it less bullish."
Investors should also look beyond the short term when considering the demand-supply equilibrium. As oil and gas companies have announced deep capex reductions, which will restrict future supply, there is likely to be upward pressure on prices as demand normalises, according to Christopher Korpan, a natural resources portfolio manager at JP Morgan Asset Management.
“The level of stimulus that central banks and governments have engaged in should also be positive for real assets. It is key to remain focused on the longer term, whereby increasing urbanisation of emerging markets will drive demand for commodities and be supportive for prices,” he says.
Oil will probably rise from $35/bl currently to around $50-55/bl by the middle of 2021, predicts Invesco’s Holt. “There will probably be one more super-cycle before we hit peak oil demand,” he predicts. “But companies cannot get sucked into thinking this is a growth business.”
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