At current levels oil prices are in a “sweet spot” for both producers and consumers according to Ed Cowart, a manager of the Nordea 1 – North American All Cap fund.
Prices of Brent Crude have remained stable between $100 and $115 per barrel over the past 24 months and Cowart notes that today’s price of $107 is exactly the same as it was two years ago despite a number of important macro and geopolitical events.
While the West Texas Intermediate – the US domestic benchmark – has been slightly more volatile, Cowart adds that its price has remained quite stable when compared with the previous couple of years.
He says: “Absent geopolitical events disrupting supply on anything more than a temporary basis – we expect this high-price, low-volatility environment to continue.”
Despite warring factions and instability in the Middle East, Cowart says whoever controls the oil ultimately will put it on the market. As such he argues that barring some kind of widespread conflagration, no long-term disruption of oil supply is likely.
He says: “In our view, oil prices around current levels represent a ‘sweet spot’ for both producers and consumers. Prices are high enough to incentivise exploration and production from the higher-cost sources that represent the only significantly opportunities to add to supply – such as oil shale, Canadian oil sands and offshore deep water.
However, at the same time, prices are not high enough to destroy demand – for example, forcing motorists to adopt public transportation.”
Cowart has 12.5 per cent of his Nordea 1 – North American All Cap portfolio invested in companies in oil and gas exploration, or equipment providers. The fund has positions in EOG Resources, Oceaneering International, Halliburton, Devon Energy, and Atwood Oceanics.