Arjun Murti became one of the most famous oil analysts of the last commodity supercycle. In 2005, while working alongside Jeff Currie at Goldman Sachs he made the call that oil could go above $100 per barrel, later predicting it would reach as high as $150-$200 per barrel.
Now working as an adviser at Warburg Pincus and a ConocoPhillips board member, Arjun is still keen to give is views on the oil market. In a series of threads on Twitter this past weekend he outlined his concerns that technology investors are not learning the lessons from the early 2000’s, the return of value stocks, a rebound in oil and gas company valuations and that energy companies can compete on ESG metrics.
One of the main mistakes Arjun points to is the tendency for heroic assumptions underpinning valuations late in a bull cycle.
Arjun goes onto say your outlook can ultimately come true, but few if any investors are interested in riding out a massive correction only to be proven right in 5, 10, or 20 years. Innovation may be inevitability but that doesn’t mean the equities are not prone to extreme optimism and pessimism at various points in the cycle.
Arjun goes onto say “Value stocks are only values if returns on capital improve. I think we may be at the start of an ROCE super cycle for Old Energy”, highlighting the low weighting that energy stocks have in the S&P 500.
Although the sector is currently ignored (banished out of sight) by pension funds, they will have no choice but to pay attention when the sectors weighting increases, and the returns versus ESG funds are compared.
To be clear Arjun isn’t saying the oil price is only going to go up. But that doesn’t necessarily matter, they are due a revaluation.
Related article: The commodity super-cycle explained