Prominent Canadian energy investor Eric Nuttall says sentiment in global oil markets is at lows not seen since the COVID-19 pandemic.
“I think sentiment right now is literally as low as it was during the COVID-19 demand shock of 2020,” Nuttall, partner and senior portfolio manager at Ninepoint Partners, told BNN Bloomberg in a Wednesday interview.
“When we look at energy stocks, we had 25 stocks make 52-week lows yesterday, volumes well above average, relative strength indicators – a measurement of how oversold stocks are – again are back to covid lows. Sentiment today is extremely challenged and extremely fragile.”
Nuttall said that the energy sector has also become more prone to volatility in recent months, due in part to uncertainty around U.S. President Donald Trump’s trade and economic policy plans.
“We have to live by our Twitter feed to know whether we’re going to have a good day or a bad day,” he said, adding that there’s palpable “fear and panic” amongst many oil investors who are uncertain about the future.
Nuttall argued that this drag on sentiment is being driven by a number of “false narratives,” one if which is Trump’s “drill baby drill” attitude towards domestic energy production, which aims to lower oil prices; something Nuttall says is unrealistic.
“There’s just so many fallacies to the narratives that are driving sentiment that I think right now, it is critically important for investors to take a pause, take a breath, and reflect on current fundamentals,” he added.
“Because they are absolutely not being reflected in either the oil price or energy stock valuations at the moment.”
The case for oil
Nuttall noted that global oil inventories are near their lowest levels in recorded history, which should support higher crude prices.
He said U.S. shale production, the largest source of supply over the past 10 years, grew at its slowest pace since its inception last year.
“And so that’s not lack of permitting, it comes down to geology, it comes down to capital discipline, and the fact that U.S. shale has now entered its twilight, and while it’s going to grow, it’s going to grow at meaningfully lower rates going forward, irrespective of ‘drill baby drill,’” said Nuttall.
In addition to those supply constraints, demand for oil this year is likely to be stronger than the current consensus, he said.
“In a world where demand’s going to grow for longer and stronger and where OPEC has shown not only a high compliance and cohesion but also (an awareness) of the dynamics of U.S. shale… the fundamentals are far, far better than what is being expressed,” Nuttall argued.
“You can go out and buy Canadian energy stocks with decades worth of inventory… I’m buying a stock as we speak trading at a 19 per cent free cash flow yield and they have like 25 years of stay-flat inventory, it’s ridiculous right now.”
