Energy industry expert has predicted that oil prices would move toward the $50-55 per barrel area by the end of 2016 and to around $60 per barrel in 2017 due to substantial declines in production levels.Roberto Cominotto, portfolio manager with GAM energy investment of Switzerland who also manages the Julius Baer Energy Fund, said that while oil production has significantly declined in the first seven months of 2016, demand has continued to grow, leading to a tightening market.The fund manager said unplanned supply disruptions in Canada and Nigeria had created a small supply deficit in the second quarter much sooner than previously anticipated.This might have created too much short-term optimism and the return of some of this supply in combination with an upcoming seasonal demand weakness resulted in a correction to oil prices.The supply/demand picture may remain weak in the very near term due to seasonal effects, however, the correction should only be of short-term nature,said Cominotto.Unlike in 2015, when expectations of oil supply declines proved to be premature, the list of countries with falling oil production has been increasing this year to include major producers like Venezuela, Mexico, Colombia, China and Nigeria.As for 2017, Cominotto said US shale and global oil production are likely to decline as major oil companies, independent producers and national companies remain under pressure to cut investments.Activity outside of North America is unlikely to recover before 2018. Once producers will start investing again it will take at least two-three years before production volumes will show an impact, he said.He insisted on this point, adding that investors tend to focus mainly on the production levels of the US and OPEC when in 50% of crude oil comes from outside of these markets.Besides oils declining production, Cominotto said the latest price corrections have shaped his projection that oil is entering a multi-year period of tight supply.Each week that passes with oil prices below $60 further damages the oil supply capacity, deepening and prolonging the oil supply deficit in the coming years and increasing the risk of future price spikes, he said.Cominotto also added that a natural gas price rally may be ahead and he expects it to remain on an upward trajectory for the coming year. Similarly to the US oil market, natural gas producers have slashed investments.The number of active natural gas rigs has fallen considerably, and currently only 81 rigs are in operation in the country. In the USthe largest natural gas producer in the worldthat means many producers are operating without drilling rigs and that production will inevitably decline, said Cominotto.However, unlike in oil, he expects the natural gas price spike to be short-lived as there are still enough resources to increase production at relatively low prices.Speaking further Cominotto said that he expects the higher commodity prices to support the entire energy complex.In terms of investment opportunities in the sector, US natural gas producer Gulfport Energy looks interesting. It is able to grow production by 2030 percent in 2016 and 2017 despite record-low gas prices. It is one of the lowest-cost natural gas producers with a solid balance sheet, he said.Beyond the producers, Cominotto said that US Silica, a fracking sand supplier, will be a key beneficiary of a recovery in US shale oil and gas activity in the second half of 2016.Given that renewables are increasingly becoming cost competitive with conventional energy, the GAM manager also sees potential outside of the conventional fossil fuel sector.Global policy support for renewables and an increasing focus on energy efficiency make this sector a good investment, in our view. One area we like is US wind power, where we own Pattern Energy, he said.
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