The oil price has pulled itself out of the doldrums of $20 per barrel. Are there opportunities for investors in energy funds? Should we expect a bounce? We take a look.
The first thing to say is that it is difficult to forecast something like the oil price, except when the price is at extremes – and, at the moment, it isn't at an extreme.
The second point is that most people will try and analyse where the oil price is going next by looking at the supply and demand dynamics. It seems obvious that this is sensible. But I have seldom seen such analysis which usefully predicts where the price is headed. (The same applies to gold).
So, it saves a lot of time to apply some basic technical analysis - which typically requires nothing more than a pencil and a ruler and the ability to draw a straight line.
On that basis, it is clear that oil could head to 60USD, where it will meet resistance, and down to 25USD, where it will find support. As good a prediction as any might be that the price will bounce between these two extremes for a year or two.
For investors bullish on the outlook, Artemis Global Energy has had an edge year-to-date (up 51%), a margin over the oil price up 45% in sterling terms. The Artemis fund is less exposed to the US than the other main funds - more “global”, with just 44% in the US, whereas the Guinness and Investec funds have 62% and 67% respectively.
The rising oil price can indicate a broader positive outlook for commodities generally. In that instance, it’s worth considering a diversified commodity fund where the manager can choose whether he wants oil, metals, rare earths or whichever natural resource commodity is attractive. JPM Natural Resources is just such a fund, one for for the long term. It is up 73% so far this year.
ACTION FOR INVESTORS
- It is difficult to forecast the oil price…
- …unless it is at extremes
- Investors thinking of investing should consider investing monthly to smooth out sharp price changes.
FURTHER READING