Bailey sold the last of his oil exposure just after the EU referendum last year, when cut Royal Dutch Shell from the portfolio and he said he is not looking to get back in any time soon.
“When looking at investing in equities our time horizon is on a five-to-10 year view, and for us there is too much uncertainty and too many structural issues to commit to oil on such a time horizon,” he explains.
Michael Baxter, an economics commentator at The Share Centre, agrees with Bailey in the thesis that the oil price price is not set to rise rise by much for several years, which he believes in turn will hit the profits of large oil companies such as BP and Royal Dutch Shell.
Baxter said: “At the moment, oil supply is being supported by shale gas and shale oil rather than what goes on at OPEC. Traditionally, the oil cycle has moved very slowly.
“When an oil well is shut down because the oil price is low, restarting it is very expensive.
“The term used in the industry is re-completing – many of the set-up costs have to be paid for all over again, and time lags are long.
“However, with fracking, the big cost relates to the huge volumes of water and chemicals that are injected deep down underground, and this is largely a variable cost. You could almost day that you can turn fracking on and off like a tap.
“For that reason, there seems to be a ceiling on the oil price at the moment.”
Because of this, unless you are an experienced oil speculator, Adrian Lowcock, investment director at Architas, said he would be inclined to watch from the sidelines.
“If there is a shock which causes the oil price to collapse then that might provide a greater opportunity,” he explained.
“Overall this market doesn’t look to have over corrected and reflects higher inventory levels and the fact that with fracking there is a supply which can be turned on and off much more quickly to soak up an extra demand.”
