There are several ways to play the eventual recovery of the oil and gas sector. Trackers can offer a means of replicating exposure to either the commodity itself or a basket of oil producers, as in the case of the iShares Commodity Producers Oil & Gas Exploration & Production ETF.
For those with direct access to equity markets, the FTSE 100 index stalwarts such as Royal Dutch Shell and BP are likely to stand the test of time and offer the least volatility as compared to their sectoral peers.
The second-tier FTSE 250 index offers a greater variety of producers and explorers. Financially damaged companies like Tullow and Premier seem like a punt at this juncture, while oil services firms such as Hunting boast a stable balance sheet and a route to profit from increased fracking activity when that market recovers. Petrofac enjoys a record order backlog and Amec Foster Wheeler reportedly has numerous new opportunities that could help its 2015.
Against a delicate global economic backdrop and a potential flood of cheap natural gas, it might be hard to visualise a $100/barrel price anytime soon, but given that we are unlikely to see a meaningful shift to renewables and electric cars anytime in this generation, history just might repeat itself and this could prove a stellar buying opportunity.
Kris Barclay is an investment manager at Charles Stanley
