'Energy crisis ahead': Nuttall makes case for US$100 oil


Jul 22, 2021


Global oil prices have clawed back significantly after a rout to kick off the trading week, and at least one energy fund manager thinks crude prices have a lot of runway – maybe even enough to top US$100 a barrel.

“I think we’re in a secular bull market for oil that will conclude with all time-highs for oil prices,” said Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners, in an interview Thursday. “This week is a good reminder there’s a lot of noise in the market, and it’s important to focus on the things that really matter.”

While Nuttall stopped short of pegging an exact price target for West Texas Intermediate, he agreed when asked if this bull market scenario would see prices clear $100 a barrel.

As was the case with financial markets, energy prices took a hit on Monday as fears of the Delta variant clouded the demand outlook. But Nuttall dismissed the selling event as a blip, and merely a deviation from fundamentals.

By Thursday afternoon, WTI was trading above US$71 a barrel after briefly dipping below US$66 earlier this week.

“The demand for oil will grow for at least the next ten years, and yet the fear of peak demand by some, is leading to the reality of peak supply.” said Nuttall. “In terms of the oil price this is a good level to allow OPEC to gradually bring on oil production and to get closer to the exhaustion of their spare capacity by some time next year.”

Nuttall’s bull case for crude prices is based off global super majors like BP Plc and Royal Dutch Shell Plc leaning into renewables, OPEC’s reluctance to drastically boost production, as well as projections that U.S. shale production growth will remain tempered.

“I think we’re entering into an energy crisis in the years ahead, that will result in meaningfully higher oil prices and meaningfully higher oil stock prices as well.” said Nuttall.

“Energy stocks do not need a higher oil price to go up. We just need the market to become aware that US$70 is a sustainable floor, and not a ceiling.”

This could attract generalist Canadian investors back to the unloved oil and gas sector, according to Nuttall, who added that Canadian producers would be unwise to boost their production, and instead should focus on share buybacks and dividends.

“How can you possibly justify growing your volumes when the valuation of your shares are trading at such dismally low levels?” he said. “There’s not a single reason why these companies should be growing their volumes, instead they should be growing their cash flows.”