Oil funds in focus as storage tanks brim over

With oil storage tanks full to the brim around the world, there is increasing downward pressure on the dollar price of spot oil, suggesting weakness in funds exposed to the asset class.

Of the European producers Norway is particularly concerned; its public and private sector finances are sensitive to oil price trends. There, financial daily Dagens Næringsliv has cited both the Wall Street Journal and Tradewinds, suggesting that Citi data points to oil storage tanks in the European region being 97% full. In the US excess oil is at an 80 year peak, while South Africa’s key oil storage terminal is already full.

Chart

The above chart illustrates Norway’s sensitivity, especially in regards to the price of Brent crude. However, the oil price fall is being felt in other ways too: Norwegian manager Odin’s Energy fund, for example, is down some 18% in 2015, to 30 November, in local currency terms.

Norway is not the only European market to border the North Sea oil fields, however. According to FE data, there are some 151 UK unit trusts or open ended investment companies, with significant energy exposure.

Of these, while many may have made positive returns over a three year period, even the best by this measure have struggled over shorter periods, say, in the past six months.

Funds 1m 3m 6m 1yr 3yr 5yr 10yr
CF Odey Absolute Return Ret GBP GTR in EU -1.04 3.91 10.66 18.46 86.20 170.71
Schroder MM International A Acc GTR in EU -4.51 3.25 -4.41 12.91 59.82 77.92 90.06
Aubrey Capital Management Ltd Aubrey Collective Conviction GTR in EU -0.76 2.27 -1.10 14.63 50.57 55.21
CF New Grande Motte GTR in EU 2.09 7.80 -2.14 15.14 49.16 68.95
CF The Abbotsford GTR in EU 2.92 8.30 -3.44 15.49 48.90 62.79
Thesis iFunds Spectrum Orange A Acc GTR in EU -0.65 0.62 -3.15 7.89 48.80
CF Ruffer European C Acc GTR in EU -3.38 -0.95 -1.88 16.22 48.69 58.62 170.43
Premier Global Utilities Income A Inc GTR in EU -5.88 1.66 -6.46 3.81 48.55 14.73 16.30
CF Buxton Acc GTR in EU -3.01 0.12 -1.43 13.03 45.59 62.74 121.08
CF Davids GTR in EU 1.16 4.14 -2.07 16.38 44.34 56.36 58.11

(Source: FE)

The outlook for the oil sector next year looks challenging, according to the latest review published by the International Energy Agency.

“World oil demand growth of 1.2 million barrels per day (mb/d) is forecast in 2016, as first signs of a slowdown appear, the IEA Oil Market Report  (OMR) for December informed subscribers,” it notes on its website, adding: “Global inventories are set to keep building at least until late 2016.”

A potential longer term challenge to oil comes in the form of the COP 21 agreement, signed in Paris.

“The IEA stands ready to support implementation of the Paris Agreement by helping countries track the transition of the energy sector and by promoting innovation and technology transfer,” the Agency said.

Industry association Oil & Gas UK’s response to COP 21 noted: “With more than 20bn barrels of oil equivalent of natural gas and oil still to recover from the UK offshore, the industry is well placed to supply this country with the primary energy it will need as it moves progressively towards the lower-carbon future.”

The American Petroleum Institute had argued before the COP 21 conference that the industry’s “success is driven, not by government mandate or legislative fiat, but through innovation, investment and entrepreneurial spirit.”

However, with a binding target for limiting global warming over coming decades, the Paris Agreement could result in more, not less, government intervention – quite contrary to the API’s viewpoint.

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