Energy stocks remain one of our highest conviction holdings in the portfolio. This is based on the view broadly held across our research providers that energy related equities are significantly mispriced. Crude Oil prices rose to levels not seen since the first half of 2015 (both West Texas Intermediate (WTI) and Brent blend). Much of the explanation for the most recent move is the growing tension in the Middle East ─ as well as the upcoming meeting of OPEC ─ that is projected to continue with supply restraint ahead of the Aramco IPO targeted in 2018. But, the team at Knowledge Leaders Capital (KLC) posted last week that the more durable and structural explanation for higher prices is that “energy capex has been slashed, oil finds are at generational lows, inventories are improving, and demand keeps ticking higher.”
So, that helps explain the commodity price rise, but why are the stocks yet to fully reflect the move?