Simply put, Dubai Brent crude highs this year brought back memories of mid-2008 when analysts were predicting $200 (Dh735.6) a barrel. Despite some volatility, fact of the matter is that the oil price is still up 10 per cent this year. And, with expectations that the price is going to jump up over the long term, there is no surprise that investors are still prospecting for chances to strike it rich.
Experts believe that a diversified company with operations in exploration, development, refining and retailing has more potential to weather these cycles. Exciting opportunities are going to arise in countries that are net exporters of commodities and rich in natural resources like Russia and Brazil.
Oil equities are quite attractive and represent a good investment over both the medium and long term. With crude prices well supported longer term because of the dipping production in addition to the low levels of spare capacity globally, the outlook for earnings and free cash flow generation is very positive.
In addition, the oil majors have run quite conservative balance sheets, supporting the already high dividend yields but also leading to the prospect of seeing increased returns of capital to shareholders.
But taking into consideration that oil stocks traded lower even when oil prices were high in 2011 makes it tough in terms of the timing of going into the energy sector. Price also finds plenty of value in number of oil exploration companies like Ophir Energy. Ophir is active in lots of African countries, including Tanzania, with assets that sit right next to those of Cove Energy.
With regard to oil-related industries, Weir Group is the way to go, a FTSE 100 engineering firm, that operates in minerals, oil and gas and power. Those who are in need of a more diversified exposure, Artemis Global Energy Fund is the best option, up 11 per cent at the end of March.
When it comes to oil field services, investors should look out for the growth of fracking and deepwater drilling services. Midstream companies, more so in North America are all set to grow over the next five years.
When it comes to exploration and production, keep a close eye on companies entering Russia — likely the bigger players ExxonMobil, Total, Statoil and Eni.
Smaller exploration and production (E&P) companies, could move the needle more based on the performance of only one or two assets. Finally,it pays to know what companies benefit from high oil or low gas prices and that means keeping an eye on the chemicals industry and utilities.
With their fast economic growth, emerging markets are becoming bigger consumers of natural resources, particularly energy.
While the long-term outlook for demand is supportive, it is the supply side of the equation that experts are particularly positive for the oil price.
In a nutshell, oil and gas are definitely a good investment for at least the next three to five years or even ten years. Beyond that, it is hard to say as technology moves quickly and growing demand will increase pressure to develop reliable, renewable resources.