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Oil prices have risen around 60% year-to-date and a whopping 16% in the last three months. The surge, which saw Brent crude crossing US$85 a barrel on occasions, is driven by the ongoing energy crisis in parts of the world. DBS Group Research believes the sustained underinvestment in oil and gas exploration and production (E&P) will likely lead to oil price spikes in 2023 and beyond as demand continues to recover as the world exits the pandemic and air travel picks up.
Oil proxies should remain in favour, and potential capex revival could rejuvenate oil services. After years of underinvestment, we could see the current period of sustained high oil prices incentivising some recovery in upstream capex.
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Oil Proxies
We continue to favour upstream companies as best proxies to ride on the oil price momentum. We believe there are more legs to the share price rally in view of the oil price optimism.
We like CNOOC as Chinese oil majors offer the highest dividend yield of 8-12% relative to peers’ average yield of around 5%.
The fund invests primarily in futures of agriculture, metal, and energy complexes. Its broad-based commodity exposure, supported by the team’s ability to generate sustainable alpha as compared to the index, is best suited to participate in the commodity price rally.
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