Playing oil’s potential rebound

As a portfolio manager focused on the global resource market, RBC Global Asset Management's Chris Beer is spending a lot of time on the fundamental outlook for oil prices.

As a portfolio manager focused on the global resource market, RBC Global Asset Management’s Chris Beer is spending a lot of time on the fundamental outlook for oil prices.

Recent data showed that three million jobs were put in the U.S. in 2014 – the first time that’s happened since 1995 – and Beer noted this economic strength is driving the U.S. dollar higher, but hurting commodities, as they typically have an inverse relationship using the greenback.

Since currency moves tend to occur in five- to seven-year cycles, he figures there are at least a couple of more years left in the U.S. dollar rally. Yet he thinks the resulting negative effect on resources should end when interest rates actually start to rise.

“The view then is that the global economy is stronger, which means you start to get later-cycle moves in commodities, specially the bulk commodities for example base metals and oil,” Beer said.

Beer and his team manage approximately $1.7 billion in funds and institutional accounts, plus a similar amount as part of other mandates. The portfolios range from the RBC Global Resources Fund, RBC Global Energy Fund and RBC Gold and silver Fund.

Most resource mandates have a benchmark energy weighting in the 60% range, but RBC’s team doesn’t makes big sub-sector bets and its energy weighting is currently around 50%.

Oil has been crushed lately, partly since the first quarter is usually the weakest when it comes to global demand, but also because oil inventory levels are rising since supplies continually come onto the market from new wells drilled when prices were higher.

But Beer thinks that many commodities, including oil, are in pretty good demand nowadays. Although many people view maturing economies as having relatively inelastic demand for crude, Beer noted that U.S. oil demand is really up an additional 700,000 barrels each day since November, when prices really began to slide.

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