The era of sub $50 (€44.6) oil prices is likely to be the norm for investors in crude oil for the next decade or so.
Chris Taylor, investment director and head of research at fund management firm Neptune, says that those in the market who think this era of low oil prices will be short lived are wrong. The reason is due to the improvement in shale resource extraction techniques.
He believes that the World Bank’s marginal cost of oil production, estimated to be between $80 and $90 per barrel globally, is also incorrect, saying it could be half that. This is due to the old estimation being based on the industry becoming heavily dependent on “deep-water”, or offshore, production to meet demand.
Taylor says that the emergence of US shale has changed this old estimation. He says that the largest shale basins – such as Bakken, Permian and Eagle Ford – now boast radically lower costs.
“Our high conviction view on oil stocks, which is formed not in response to market noise or sell-side feedback loops but rather real world research, is expressed across our funds,” says Taylor.
He adds that while productivity improvements will feed through into profits, it is likely that they will simply send the oil price down further – and take these companies’ share prices with it.
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