Partner and Senior Portfolio Manager at Ninepoint Partners Eric Nuttall says he thinks oil is mispriced amid geopolitical risks.
Bloomberg News reported that oil prices fluctuated around US$70 per barrel Wednesday morning after falling on Tuesday as many market participants continue to monitor geopolitical risks regarding escalations in the Middle East. On Tuesday, Nuttall said that given the current situation, there is the potential for “an actual physical” supply disruption in the Middle East.
“Geopolitical risk is the highest in my 21 (year) career today. And yet there’s no risk premium in the oil price. Well, why is that? People believe: ‘Well OPEC has all this spare capacity, they can just turn a couple of vowels and it’s on the next day,’” Nuttall said.
“And so that’s preventing oil from reflecting any semblance of the real risk that the world faces right now.”
He also said he thinks the relationship between oil prices and risk has “completely broken down.”
“If you look at where global oil inventories sit relative to demand, it would be suggestive of a Brent price today in the mid-eighties and we’re very clearly not there today. And so, there’s a lot of reasons for that. I think there’s a sentiment issue. You have very weak paper demand for oil,” he said.
According to Nuttall, there are a number of “false narratives” in the market.
“But when I reflect on it today, we’ve never consumed more oil than we have in the history of humanity. Global oil inventories are either at or near their lowest levels in history,” he said.
Nuttall added that he thinks oil is mispriced by around $10 per barrel based on current inventory levels.