Ariel's Charles Bobrinskoy: Oil is poised to move higher
Speakers
Charles Bobrinskoy
— Vice Chair and Head of Investment Group, Ariel Investments
Summary
On Closing Bell Overtime, Ariel Investments vice chairman Charles Bobrinskoy argued that inflation is higher than the Fed's 2% target and that hard assets, especially oil, are poised to move higher. He named SLB as a high-conviction beneficiary of increased Venezuelan oilfield activity and APA as a cheap energy name with a major Suriname oil find and US natural gas exposure. The discussion covered recent oil market moves and these stock picks.
- Charles Bobrinskoy of Ariel Investments says inflation is running hotter than the Fed's 2% target, citing PPI above 3% year over year.
- He favors hard assets, including commodities, precious metals, and real estate, in an inflationary environment.
- He argues oil is poised to move higher because inflation-adjusted prices have gone nowhere since 1980.
- He is highly confident in SLB as a beneficiary of more oilfield activity in Venezuela, given its international focus.
- He highlights APA's Suriname offshore oil find with Total, US natural gas position, and cheap valuation.
- The interview also touches on recent oil market moves and stock picks.
Ideas
Inflation favors hard assets broadly
Inflation is running higher than the Fed's 2% target, as shown by PPI above 3% year over year, which should make hard assets more valuable. Commodities, precious metals, and real estate are among the hard-asset groups he expects to rise in that environment.
Oil poised higher on inflation
Oil is a commodity and hard asset that should move higher with inflation. On an inflation-adjusted basis it is basically at the same level as 1980 and has gone nowhere, while PPI above 3% suggests inflation is stronger than the Fed's 2% narrative. He calls oil one of the asset groups poised to move higher.
SLB benefits from Venezuela activity
SLB is one of the names he is most confident would benefit from more oilfield activity in Venezuela. Schlumberger has focused internationally and exited most of the US Permian, and as a service company it benefits from client drilling activity regardless of whether those clients make or lose money. He expects more activity and sees SLB as a prime beneficiary.
APA cheap on Suriname oil find
APA has a huge offshore oil find in Suriname near Venezuela with Total and is set to start producing a lot of oil next year. It is also well positioned in US natural gas and is fundamentally extremely cheap, trading at less than ten times earnings.
