Energy - JANUARY 29, 2015

Where will oil prices go?

by Drew Campbell

The biggest energy story in the world in 2014 focused on the price of oil. In June 2014, the price of Brent crude was around $115 per barrel; after plummeting in the second half of 2014, the price has been recently hovering around $50 a barrel. While U.S. consumers enjoy cheap gasoline, concerned oil-producing countries and energy investors alike are wondering when prices will rebound.

Altius Associates’ report Key Challenges Facing Private Markets highlights a key question for energy investors this year: What to do about oil prices?

“Our advice to LPs is to spend very little time trying to discern where oil prices are headed,” suggests Jay Yoder, partner and head of real assets with Altius. “Even those who have spent their careers immersed in the energy industry cannot make accurate predictions on energy prices. Second, invest only with quality managers — the best upstream GPs do not get carried away by bullish views on commodity prices. Third, take advantage of the current market environment and make significant new commitments to quality private energy funds in the upstream and equipment and services subsectors. These are positioned to generate outsized returns in the years ahead.”

Falling oil prices will clearly affect U.S. private energy investing, but price declines will be felt differently across subsectors and geographies. The power sector, meanwhile, will remain largely unaffected, and the midstream sector will see modest effects, but “oil-dominated upstream assets are directly and negatively impacted, and existing investments will be marked down in value. Planned near-term exits will likely be delayed,” Altius notes

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