Every dollar in the movement of the oil price directly affects his profit and loss, says Angelos Damaskos, the manager of the CF Junior Oils Trust. Since the fund launched in September 2004, the manager says there have been several highs and lows in the volatile oil sector.
Last July, for example, oil prices hit a record high of nearly $147 a barrel. Less than five months later, they reached a low of $39.19 a barrel.
“In summer last year, oil was oversold because of the crisis and speculation. [The oil price] was exaggerated because so many people were betting on rising oil prices.” He says that in January, oil prices were too low, because funds and investors were selling across the board in an attempt to raise liquidity.
“We invest in small and mid caps that specialise in oil exploration and production. But we don’t invest in integrated major oil companies such as BP,” says Damaskos.
According to the fund fact sheet, 100% of his portfolio is invested in the commodity and energy asset class. The biggest holdings are Det Norske Oljeselskap Asa (8.3%), Venture Production (6.9%) and Bowleven (5.8).
At the end of March, 26% of his portfolio was invested in Britain, 20.2% in Asia, 19% in Eastern Europe and 12% in Africa.
Bloomberg reports today that oil prices rose from their lowest in a month as the dollar dropped against the euro, spurring demand for commodities as a hedge against inflation.
Crude oil for the May delivery fell by 2.1% to $49.3 a barrel in electronic trading on the New York Mercantile Exchange. Prices are up 11% this year.
The May contract expires tomorrow, and according to Bloomberg, the more active June futures are down by 1.6%, to $51.65 a barrel.
“The trust is very much correlated to the direction of the oil price. It has suffered in the past four months from a drop in oil price,” he says. But he adds that over the past two months, the situation has improved. At times of “adverse market conditions”, Damaskos may also hold a high level of bonds and government securities.
However, Damaskos is positive about the oil price. He says prices will continue to rise because “the Opec [Organization of the Petroleum Exporting Countries] cuts supply in a very diligent way”. He adds: “It is widely accepted that Opec doesn’t want to see oil prices below $70-75 a barrel.”
“The world will return to growth this year,” he continues. “China and India have an emphasis on industrialisation and are heavy consumers of commodities and energy. Demand will rise.”
He says oil companies will have to cut back on development plans as a response to the low oil prices. “Once economies grow and the demand for oil rises, the supply of oil will not be able to grow as quickly again. It will create a similar situation, where demand is bigger than supply.”