US fund managers say the present moment may provide real opportunities for differentiation. Rob Thummel, senior portfolio manager at Tortoise Capital in Kansas, believes the relative outperformers will be companies exposed to electricity-generating natural gas rather than travel-powering oil. He also thinks the midstream energy infrastructure companies – like Enterprise Partners and Enbridge – are good picks.
‘Given the lack of capacity, oil storage is very valuable right now,’ said Thummel, who co-manages the $2bn Tortoise MLP and Pipeline fund. ‘That presents an opportunity for some of these infrastructure companies to lease out existing storage facilities at higher rates.’
The stocks one might want to avoid? Oil services names, which rely on the continued hunt for new sources of oil.
‘We’re going to have rig counts continue to decline, which means declining demand for services’ Thummel said. In general, ‘highly levered commodity-sensitive names are not place to be for now.’
Drilling services provider Diamond Offshore filed for bankruptcy last month; its shares, which started the year at $7.30, have fallen below 20 cents.
Anthony Grisanti, an energy trader since 1984, said that those who are bullish on oil should look to the big integrated names, and should avoid speculating on the commodity itself. After all, as some amateur commodity traders may have painfully learned for the first time, losses in futures can be infinite.
Alex Rosenberg, editor Citywire RIA
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