Merchants trust's Gergel: The contrarian investment opportunity in oil majors

Simon Gergel, manager of the Merchants investment trust, forecasts a much tighter oil market this year and beyond, with a return to higher prices at some point.

The oil market is in turmoil. Saudi Arabia and OPEC's decision since late 2014 to keep pumping oil, rather than trying to control the price, has combined with rising US shale oil production, to result in a period of oversupply and collapsing oil prices. Major oil companies have seen their profits and cashflows under huge pressure as returns have fallen below cost of capital.   However, out of such situations, opportunities arise. We are seeing a massive retrenchment by the oil industry, with hundreds of billions of dollars in investment spending curtailed or delayed. Rampant cost i...