Eric Nuttall: Oil Bull Market on Fast-forward Due to Russia/Ukraine War

TL;DR

The Russian-Ukraine conflict is causing a disruption in global oil supply and is highlighting the ongoing energy supply crisis. Energy stocks are expected to benefit from the underinvestment in the industry and the bullish outlook for oil prices.

Transcript

i'm charlotte macleod with the investing news network and here today with me is eric nuttall partner and senior portfolio manager at nine point partners just a reminder before we get started that if you enjoyed this interview make sure you hit the like button and subscribe to our channel eric thank you so much for joining me online once again great... Read More

Key Insights

• 🇺🇦 The Russian-Ukraine conflict has accelerated the energy supply crisis caused by years of underinvestment and ESG pressures.
• 🌐 Sanctions on Russia have impacted global oil supply, exacerbating the under-supply situation in the market.
• 🛢️ The bullish outlook for oil prices is driven by the depletion of OPEC spare capacity and the decline in US shale growth.
• 🍝 Canada's announcement of increased production does not guarantee a significant ramp-up from energy companies due to past trauma and attractive stock valuations.
• 🥺 Investors can expect a massive influx of cash flow from energy companies in the form of buybacks and dividends, leading to a re-rating of energy stock valuations.

Questions & Answers

Q: When did the perception of the Russian-Ukraine conflict change from being a distraction to a significant factor in the energy industry?

The initial view of the conflict was as a distraction, but it changed when the impact on global oil supply and the underinvestment in the energy sector became more apparent. This was realized over a few days to a month after the conflict started.

Q: How much of Russian oil supply has been sanctioned or affected by the conflict?

It is challenging to get real-time data on the exact impact of sanctions, but estimates suggest that around 1.5 to 2 million barrels per day of Russian oil supply have been affected. However, the long-term impacts and the return of sanctions after peace are uncertain.

Q: Is there a possibility for other countries, such as China, to step in and buy the sanctioned Russian oil?

China is currently buying a significant amount of Russian oil, but there are infrastructure constraints that limit the quantum of exports to other countries. Western societies are hesitant to justify buying Russian oil due to moral and political reasons, resulting in an under-supply situation in the market.

Q: How do Canadian energy companies view the increase in production announced by the natural resources minister?

Canadian energy companies prioritize generating free cash flow and returning it to shareholders through buybacks and dividends. They are unlikely to aggressively increase production due to the trauma of the bear market, attractive valuations, and the need to be cautious with investments in a changing energy landscape.

Summary & Key Takeaways

• The Russian-Ukraine conflict initially viewed as a distraction, but it has fast-forwarded the energy supply crisis caused by years of underinvestment, vilification of the sector, and ESG pressures.

• Sanctions on Russia have impacted its oil supply, with an estimated 1.5 to 2 million barrels per day affected. The long-term impacts on Russia's productive capacity and the return of sanctions after peace is uncertain.

• The global oil market was already under-supplied, and the conflict has worsened the situation. The depletion of OPEC spare capacity and the decline in US shale growth contribute to the bullish outlook for oil prices.

• Canada's natural resources minister's announcement of increased production does not guarantee the willingness of energy companies to ramp up production due to past trauma from the bear market and attractive valuation of stocks.