Hugh Hendry, CIO, Eclectica Asset Management, discusses oil with Geoff Cutmore of CNBC. We are big fans of Hendry's outspoken views, and this is a must-view. Click the image below to watch the segment:
Here is what he said:
It is phenomenally difficult to be bullish on oil owing to the fact the oil curve is in contango. What I mean is that while oil is trading today at $40, if you go out two years, its expected, indeed it trades at $70, and thatâs why you have all the surplus oil being hoarded on these vessels at sea.
Now, every day that the oil price doesnât move closer to $70, is a day of negative carry, its a day where youâre losing money being long oil, which is why I proffer my caution.
Iâm a believer in Peak Oil, Iâm a believer in this capital destruction weâre not going to be investing or looking for oil in all the hideous places like Russia etc. over the next ten years, and we need to. The world of ten years time the time of our grandchildren needs us to be looking for the blasted stuff now.
We ainât going to do it, weâve suspended all that activity. I agree [that there is an opportunity there], but as in all walks of life, it is going to be a matter of timing, and I believe the [Carl Weinberg, see video] timing is way way off.
It's an enormously difficult task to be bullish on oil today.
Lord John Brown was the most bearish person in the world about oil, and for twenty years the price of oil lost 80% of it value, and the most bearish guy in the world ended up at the top, when the price of oil reached its lowest levels.
BP stock in absolute price terms went down during the ten years the price of oil was going from $10 to $150 per barrel, so if youâre bearish on oil you should own BP; you should own Shell, because theyâre contra-cyclical, theyâre unleveraged, you get a very high carry. In a market like this one, you want to own assets like this that are unleveraged, and you get a 5% yield.
