Oil is back on the agenda for money managers and investors around the globe, with concerns over a glut, the stubbornly low price and OPEC decisions bringing the slippery stuff back into executives' sights.
These factors mean some managers are making strategic allocations to certain energy companies, while others are still waiting for the right opportunities to re-enter the market.
"From the conversations we've been having with investors, oil and energy are on the radar, but anecdotally we hear investors want to see some action (in particular around the oil price) before they move," said Adam Laird, London-based head of exchange-traded funds strategy, Northern Europe, for Lyxor ETF. "Oil has been hovering around $50 for the last year and has been slipping back. Energy can be a painful trade and investors don't want to be first to move."
"The market is really worried that OPEC cuts are not working" and the pace at which inventories will normalize, said Richard Robinson, investment manager at Ashburton Investments in Jersey. He also cited the exclusion of Libya and Nigeria from OPEC's recent supply cuts as a focus: "When you've got such high inventory levels, you're very susceptible to scare stories."
However, Mr. Robinson expects the second half of 2017 to be better when it comes to inventories, with the seasonality of oil demand kicking in. "Typically you demand between 1.8 million to 2.2 million barrels more in the second half than the first — that should put more pressure on (oil inventories) and we should get a significant inventory draw over the second half of the year," he said.
Mr. Robinson said his energy fund "has an overall oil price sensitivity to it.'' If, for example, executives believe oil will move positively over the next six to 12 months, they move into stocks with a high degree of sensitivity to the oil price, such as service companies and drillers. If they think prices will move negatively, they move further downstream — into shipping stocks, refiners and integrated oil companies.
"Although we have reduced that slightly, from 1.68 to 1.5, we remain bullish for the second half and I will look to pick that (sensitivity) up as I see signs that sentiment is changing," he said. A value of 1 means the fund has the same sensitivity to the oil price as the benchmark.