Oil market set for significant growth: Eric Nuttall's prediction
In the world of oil, there's a mixed outlook as we move towards the second half of the year. Eric Nuttall, a partner and senior portfolio manager at Ninepoint Partners, offers his insights on the current state and future trends of the oil market.
Nuttall anticipates a normalization in U.S. shale production and spare capacity from OPEC, which could potentially balance the market. This balance is further reinforced by the increase in production capacity from an Exxon Mobile-led consortium in Guyana. The fourth floating oil vessel recently started production, pushing the oilfield's capacity beyond 900,000 barrels of oil per day.
However, OPEC is not standing idle. The organization is boosting oil production, increasing it by 1.2 million barrels per day between now and September, and an additional 500,000 barrels per day in August.
Despite the increased production, the sanctions on Russian oil have placed a premium on oil, with WTI hovering around $US63 per barrel and Brent trading at $66 as of Wednesday afternoon. Nuttall believes that oil stocks at these prices are fairly valued.
In the short term, Nuttall is bearish on oil, preferring natural gas as a better play for the next six months. He expects a surge in oil prices next year, but in the meantime, he anticipates significant inventory to build starting in September due to increased production but reduced demand from seasonal refinery maintenance.
Looking towards the future, Nuttall sees better opportunities in natural gas. He highlights Expand Energy Corporation, formerly Chesapeake Energy Corporation, as a top pick. Based in the United States, Expand Energy is an independent natural gas producer, primarily focusing on operations in the Appalachian and Haynesville shale regions, with major operations in Ohio and West Virginia. The company boasts a 14% free cash flow and a 3.4% dividend.
As production projects come online in Guyana and Brazil, amounting to about 650,000 barrels per day at full capacity, these facilities will play a crucial role in balancing the oil market in the long term, according to Nuttall.
In summary, while the oil market is seeing increased production from OPEC and new projects in Guyana and Brazil, the short-term outlook is bearish due to seasonal factors and the sanctions on Russian oil. However, Nuttall remains bullish on the long-term prospects of oil and sees better opportunities in natural gas.
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