Benchmark oil prices fell by more than five per cent in midday trading on Monday, but one oil bull says energy markets should recover and stabilize within a few days.
Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners, told BNN Bloomberg that the price decline of both West Texas Intermediate (WTI) and Brent crude was widely expected after a retaliatory Israeli air strike on Iran over the weekend did not target oil facilities in the country.
As of 2:00 p.m. Monday, WTI was hovering beneath US$68 per barrel, while Brent was trading at just under $72.
“I don’t think the move today is surprising to anybody who was following the events over the weekend given the runup in expectations of the possibility of a much more serious strike by Israel on Iranian oil infrastructure,” Nuttall said in a Monday interview.
“I think what we’re seeing is the complete removal of any geopolitical risk premium that was in the oil price… I think you’ll get a financial wash-out and we’ll recover over the next couple of days.”
Nuttall said oil watchers will now be looking ahead to next week’s U.S. presidential election as well as an OPEC meeting in early December – two events that will influence the price of oil heading into next year.
On the election front, he views “a likely (Donald) Trump victory as bullish for crude oil,” adding that a second Trump administration would likely impose harsher sanctions on Iranian oil exports, which would cut into global supplies.
“And now with the faceplant in the price of oil, we think it is less likely that OPEC will go ahead with returning barrels beginning in December, this gradual unwinding of their voluntary cuts,” he said.
Nuttall said these factors along with oil market fundamentals support higher crude prices in the coming months, despite ongoing global demand concerns, particularly in China.
“We’re not ultra bullish, we’re not calling for $85 or $90 (per barrel of) oil, we think $70 to $80 is a likely bend, but the market today is just far too bearish,” he argued.
“There’s no reason to be panicking right now, what you’re seeing today in the oil price is a financial flush-out and we’ll get past this.”
Nuttall said that he’ll remain bullish on energy stocks until there is a meaningful change in fundamentals, which he does not foresee.
“We would need to see global inventories meaningfully rising, we would have to see demand weakening significantly more, we would have to see non-OPEC supply rallying, shale exceeding expectations – none of those remain our base case,” he said.
With files from Bloomberg News