BANGALORE |Fri Jun 17, 2011 12:19pm EDT
BANGALORE(Reuters) - Buy oil stocks on high crude prices but sell uranium andnatural gas, was the advise of a fund manager at Sprott AssetManagement's energy fund, which invests in small and mid-sized Canadiancompanies.
Oil prices are trending higheron fundamentals and not on geopolitical upheavals alone, reckons EricNuttall, the lead portfolio manager of Canada's Sprott Energy Funds -- a$169 million natural resources-focused equity fund.
"Emergingeconomy demand (for oil) growth is outpacing the demand destructionthat we are seeing in developed economies, namely United States,"Nuttall told Reuters in an interview.
His top 10 picks include Legacy Oil and Gas (LEG.TO), Westfire Energy Ltd (WFE.TO) and Bankers Petroleum Ltd (BNK.TO). By the end of 2010, his fund topped the wider Toronto Stock Exchange's S&P/TSX composite index .GSPTSE by more than 17 percent.
Thefund is overseen by Toronto-based Sprott Asset Management, which isheaded by Bay Street contrarian investor and Canadian investment guruEric Sprott.
"In Canada we havemore listed oil and gas companies than any other country in the world,so we have a tremendous amount of opportunity," said Nuttall, who joinedthe fund in 2003.
The averageprice of oil is likely to be in the range of $95-$100 a barrel thisyear, he said, adding that demand would strengthen in the second half asglobal economy gradually brightens.
Oilis currently trading at around $94 a barrel, while natural gas priceshave slumped to trade just over $4 per million British thermal units(mmBtu) from its 2008 levels of $13 per mmBtu, and may fall further.
Thefund manager said stubbornly low natural gas prices had not bottomedyet and the over supply condition would not cool any time soon.
"Lookinguntil 2015, we are in a sub $5-ish world until North America becomes anexporter of natural gas ... the record price five years down the lineshould have been $7 per mmcf for a company to earn a decent rate ofreturn," said Nuttall.
FUKUSHIMA WOES
Severalcountries were forced to cap or delay their nuclear energy aspirationsafter the meltdown at the Fukushima Daiichi plant in northeastern Japan, prompting strident anti-nuclear protests around the world.
"Foruranium, I think the outlook is awful. We have many countrieseffectively deciding to shut down all of their nuclear reactors," saidNuttall, who is underweight on uranium stocks.
Countries like Germanyand Italy are set to completely ban or lessen their dependence onnuclear energy, while developing countries are delaying their expansionplans under immense public pressure.
World's No. 2 uranium producer Cameco Corp's (CCO.TO) shares have lost over a third in value since Japan was hit by an earthquake and tsunami, while Uranium One Inc's (UUU.TO) market value has more than halved since then.
AlthoughNuttall questioned the feasibility of finding an alternative to nuclearenergy for some of the countries, he asserted uranium would remain weakthis year.