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Place your bets on the price of oil

Terry MurdenMon 10th: Motorists are enjoying the fuel price war at the pumps as they finally get some benefit from the slump in the oil price. So, how long will it last?

Opinion on the direction of the oil is as divided as ever. Brent Crude fell this morning to around $48 a barrel on data showing a continuing over-supply in global markets.

This has not deterred hedge funds who are buying into oil in the belief that a rebound in the price is on the cards. Is this wise?

According to Kames Capital’s chief investment officer Stephen Jones oil prices are set to remain in and around their current range for an extended period. Jones says predictions of rebounds back to triple-digit territory – $100-plus – are wide of the mark.

After its sharp decline from the middle of last year Brent returned close to $68 in early May this year and prompted forecasts that it would be back to its higher level some time soon.

Jones believes ongoing pressure from the dollar, an increasing pipeline of supply, and a lack of global demand will keep it pegged back.

He argues that despite bottoming earlier this year and staging some form of recovery, the fundamentals remain the same for oil. The rig count in the US is now rising again, new pipelines of supply are set to come on stream, and there is a lack of growth globally which is keeping demand subdued.

He also points to continuing turmoil in Greece and the slowing of growth in China as two factors that will keep the lid on energy prices. On that basis, a range between $40 and $65 seems to be the most likely situation in the coming months.

“Oil does not represent a compelling investment opportunity,” he said. Perhaps someone ought to alert the hedge fund managers.

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