21 August 2017, Sweetcrude, Lagos — Even while global supply seems to be above demand, crashing oil prices, experts have said the sector is still attractive to investors calling to question the deception of other oil investors who have constantly used low oil prices as an excuse to evade investments.
Beat Wittmann, a partner at Swiss financial advisory Porta Advisors, told CNBC’s Squawk Box during a live interview last week, that although prices may look downwards yet, the sector holds great benefits for investors who are yet to quit the sector despite the downturn.
“The sector has been underperforming, there’s a great value, so you have to play the sector,” he said.
“The sector is so attractive right now and it’s a global demand-supply game.”
According to Wittmann, although crude oil prices have refused to go beyond $60 since the beginning of the slip yet, oil majors already stocks that they are profiting from.
Moreover, he said since oil majors have already cut down costs and explorations, the companies have since restrategised and are making profits even with the low oil price.
“They’ve cut costs and exploration programs. They’ve digested and readjusted balance sheets and quite frankly that investment case does not so much depend on if the oil price is at $50 or $60. They just look through that,” he said.
He also pointed to an important point, asking why despite the low prices oil companies still post-high profits and offer superior dividends yearly.
He advised investors to play the sector as a whole rather than picking any individual companies or geographical areas.
Corroborating Wittmann’s view, Nick Nelson, head of global and European equity strategy at UBS, said the sector is not doing as badly as it is made to look.
“(The oil sector) does have a very high dividend yield. It’s got the highest dividend yield in the European market at about 6 percent, so we think there’s some value there,” he told CNBC’s Squawk Box.
According to him, super major oil companies globally are now operating in a forever-low oil price environment (around $50pb half of price in 2014 before crashing) – the illusion of the forever-high prices are now over.
“Value has returned because international oil giants have adapted,” he said.
Shell’s chief executive, Ben Van said in the company’s Q2 report last month, that the company is preparing to operate in “lower forever” oil price regimes.
BP also said it is setting strategies for the new oil price reality.
“BP is continuing to plan for a lower oil price world. I’m not expecting a big shift in prices anytime soon and a price of $50 a barrel looks like the right number to plan on for the rest of the decade,” Bod Dudley, BP chief executive said earlier this month.
Goldman Sachs also said Big Oil is now repositioning itself for higher profits in the $50pb price regime due to simplification, standardisation, and deflation.
Nelson also said due to the anticipated drop in supply and fewer investments in exploration, the market should expect a shortfall in 2019 and 2020, adding that price will shoot to $60 per barrel.
Last week in a research note, International Energy Agency (IEA) and the Organisation of the Petroleum Exporting Countries (OPEC), upgraded oil demand growth forecasts for 2017 by 1.51 million barrels per day and 1.37mbpd respectively.
The analysts cited the Europe oil sector as an example. According to them, Europe’s oil sector had the highest dividend yield, validating the embedded value in the sector they said.
Europe’s oil sector has a high dividend yield of about 6 percent- the highest in the world.
Analysts say now is a good time to invest in the energy sector.
Last week, Nigeria’s petroleum minister, Ibe Kachikwu said the government is looking towards reducing costs of crude oil production per barrel from $32pb to $15pb to attract new investments and encourage existing investors.