Ninepoint Energy Fund’s Eric Nuttall sees a strong year ahead for oil stocks, which have been lagging behind the surge in oil prices, citing unprecedented draws in oil inventories. Nuttall, who manages Canada’s largest energy mutual fund, says “the macro backdrop for oil has never been as positive” in his career, and while oil stocks are not soaring along with crude prices that have recently been flirting with $95 per barrel, this is the time to invest.
“What we see now are [oil] inventories falling at the fastest pace in history, owing to strong global demand, tepid supply, and curtailed volumes from OPEC,” Wealth Professional quoted Nuttall as saying.
Now is the time to “buy into a sector with their strongest balance sheets in history, highest free cash flow in history, and an imminent pivot towards more meaningful buyback and dividends,” he added.
Speaking on BNN Bloomberg on Wednesday morning, Nuttall said that while there is currently a massive disconnect between the price of oil and the way oil company stocks are trading, what comes next will dictate everything. More specifically, Nuttall advised that investors keep an eye on what oil companies do with all the free cash flow they are storing up from $90+ oil prices, which will prompt dividend hikes and buybacks.
It will be at that point that the market starts to believe in oil companies again.
Nuttall also said he expected Canadian oil producers to return as much as 20% in 2024, regardless of whether oil prices continue to rise. However, in the shale patch, he expects a peak in production earlier than previously anticipated, noting that shale oil output in the U.S> has entered its “twilight”. If shale peaks, Nuttall hypothesizes, investors could swap it out for oil sands producers, benefitting Canada’s heavy oil industry.
By Tom Kool for Oilprice.com
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