Contrary to the growing chorus of energy bulls, top UK money manager Neil Woodford is sounding the alarm on two of the bigs.
Telegraph: He said: “Of course, these are companies that are affected by the global recession. But it is also getting increasingly expensive to find new oil and gas reserves and when you look at the cash-flow dynamics, you see that at the sort of oil prices we are now seeing, both Shell and BP fail to generate enough cash to cover both their capital expenditure and their dividends.”
Mr Woodford believes the global economy is set for prolonged weakness as consumer debt is repaid. He also says there is scant evidence that demand in the economy is recovering. This leads him to predict another possible period of weakness for oil prices.
He added: “If we are right about the economy, then oil prices will come under pressure next year. In the near-term I expect demand to remain weak. We will not see a V-shaped recovery or strong demand growth. So I don’t expect oil prices to be bouncing strongly and they may come down from the current $65-to-$70-a-barrel range. For these two companies to generate enough cash for capital expenditure and dividends, they need oil prices to rise significantly.”
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