Increasing Capex budgets will drive the commodity bull run for at least another five to 10 years, acc...
Increasing Capex budgets will drive the commodity bull run for at least another five to 10 years, according to Investec’s Global Energy fund managers.
Mark Lacey and Jonathan Waghorn warn short-term demand data will be weaker as global concerns creep in and airlines cut fleets but believe BRIC economies will keep demand up longer term.
“The volume of Chinese car sales is up 18% in the first four months of 2008 and the Brazilian sales up 38% as a result of a recent credit boom in the country,” they said. “Demand for vehicles is fuelling non-OECD growth.”
Lacey added that the recent spike in oil prices is causing some demand destruction but there is no immediate alternative to gasoline or diesel as transportation fuels.
Also consumers will adjust as prices moderate causing demand to return and begin the next leg of the cycle.
Even if the oil price did pull back, he added, oil industry capex would increase, driving oil services revenues.
“In our opinion, the greatest leverage to the cycle will come through the higher Capex plans,” they added.
”Oil services companies will be the beneficiaries. With activity picking up as a result of higher commodity prices, we expect investment levels to rise further. We believe the larger integrated oil companies are justifying current Capex budgets on oil prices of around $55 per barrel.
“With spot prices at $135, we expect to see further Capex increases and cost inflation in a similar vain to what we have already had this year.”
They added the big increases in Capex already seen this year means the investment cycle for commodities is going to last another 20 years.
