Opinion: Fund manager who’s been right on oil has a depressing new prediction
T. Rowe Price New Era’s Shawn Driscoll says the price for a barrel of oil could drop into the teens
Reuters
In November 2014, Shawn Driscoll, manager of the natural-resource-focused T. Rowe Price New Era Fund, told me he expected crude oil prices, then in the $80s-per-barrel range, to fall into the $50s within 10 years.
Ten weeks later, with crude in the $50s, I interviewed him again and he predicted crude would drop into the $30s.
This week, when oil was trading in the low $30s, I caught up with him once more. And if you’re looking for a so-called tradeable bottom in energy markets soon, you’re going to be disappointed.
Although Driscoll thinks crude oil will slip into the low- to mid-$20s within six months — at around $29.50 in late-Friday-afternoon NYMEX trading, we’re not far from that now — it ultimately could go lower as we spend the next decade digging out of a secular bear market in commodities and oil.
Why? Oil’s oversupply is profound and will last for at least two years, he said, and too many industry people still are in denial.
The oversupply, of course, stems from Saudi Arabia’s efforts to keep pumping to preserve market share from U.S. shale producers and other countries like Russia and Iran, which is chomping at the bit to free itself from international sanctions so it can pump oil again — at any price.
Commodities secular bear markets go on for years, fund manager Shawn Driscoll said — the last one took about 18 — and we’re only in the early stages of this one.
Given current demand — and without new Iranian production — “our model is saying we’re still oversupplied a million barrels a day in ’16,” said the manager of the $2.7 billion New Era mutual fund PRNEX, -2.31% “Our model for ’17 still shows oversupply with above-trend-line demand and without Iran.”
And the oversupply may be even worse than traders and investors acknowledge, because hundreds of thousands of barrels a day of new production are coming online in places like Brazil and Kazakhstan over the next couple of years.
“The piece that’s most overlooked by market participants … is the long-tailed projects, deepwater projects that take three to five years to come online. Those projects are still coming,” he told me. “There were decisions made in 2013 and 2014, the echo of those projects is still coming online this year and next year. 2018 is the first year you don’t see a lot of those projects coming.”
But despite massive production cutbacks, tens of billions of dollars in reduced investment and 250,000 layoffs and counting in the global energy industry, Driscoll sees, if not complacency, then a lack of fear among energy investors and decision makers.
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Another take: currency the source of fall: http://www.marketwatch.com/story/oil-could-fall-to-20-but-not-for-the-reason-you-think-2016-01-11?mod=MW_story_recommended_default&Link=obnetwork
