It certainly has been a tough couple of months for energy shares such as Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL).
They have been hit hard this year after oil prices crashed lower due to a significant decline in demand because of the coronavirus pandemic.
At one stage oil prices even dropped into negative territory for the first time in history.
But the worst could soon be behind the black gold according to one billionaire investor.
Oil prices to US$100 a barrel in 18 months.
Egyptian billionaire and Orascom Investment Holding CEO Naguib Sawiris told CNBC that he believes oil prices will hit US$100 per barrel in 18 months’ time.
Mr Sawiris believes the price war between Russia and Saudi Arabia this year was really about pushing U.S. shale producers out of business to support long term prices.
He said: “I think it was calculated. I think they knew that this was going to happen and they still wanted to do it because, by killing a competitor, the price will rise beyond 50 or 60 dollars. So I actually believe that 18 months from now oil will hit US$100.”
This has since been supported by OPEC+ agreeing last month to cut production by 9.7 million barrels a day, which is the equivalent of 10% of global production. Combined, Sawiris appears more confident on the outlook for oil prices.
Should you buy energy shares?
If Mr Sawiris’ predictions prove correct, then buying energy shares at the bottom of the cycle could lead to strong returns for investors over the next two years.
However, there are still a lot of unknowns due to the pandemic. I’m optimistic that the global economy will start chugging along again in the coming weeks and months, but any delays to this could worsen the supply glut and push back a recovery in oil prices.
In light of this, rather than going all in on an energy share or the Betashares Crude Oil Index Etf- Currency Hedged (ASX: OOO), I would stick with a diversified miner like BHP Group Ltd (ASX: BHP). As well as iron ore and copper, BHP offers investors exposure to oil.
This article originally appeared on The Motley Fool.
