Senior PM backs commodity exposure following oil price hike

Oil prices have hit a five-month high following Opec’s production cuts. According to Independent Capital senior portfolio manager Pablo Gonzalez, that means it is time for investors to boost their exposures.

 

Gonzalez, who manages the Industrial Metals Championsfund and the White Fleet II Energy Championsfund, told Citywire Switzerlandthat the energy and gas sector is in its best shape for 10 years.

 

‘Oil prices are off to their best-ever start to a year, as fears of a supply glut cool – part of a 2019 recovery in risky investments from stocks to commodities. Estimates of oil demand growth have been revised many times over the past few years, and exactly the same happened again some days ago, as the International Energy Agency observed that global energy demand grew by 2.3% in 2018, nearly two times the average rate of global energy demand growth since 2010,’ he said.

 

‘Demand remains more robust than it appears to be. This is critical, as a less oversupplied oil market would require a smaller production cut by Opec+ to rebalance the oil market. Therefore, provided that compliance to the Opec+ production cut deal improves and oil demand remains healthy, the market should tighten further.’

 

He also explained that commodity producers have hit a ‘sweet spot’ in their cash flow cycle, which is a sign of management discipline and responsible capital spending.

 

What’s more, he believes that some companies could be free cash flow positive at $40 per barrel around 2020.

 

‘We clearly favour oil and gas equities and industrial metals equities, as we think they may enter the sweetest stage of the cycle. The strong performance year-to-date shows the first signs of this trend. Even so, valuations remain undemanding.’

 

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