One of the biggest oil stock bulls on Bay Street is reminding investors that recessions don't always send demand for crude into negative territory.
Eric Nuttall, partner and portfolio manager at Toronto-based Ninepoint Partners, spoke to a digital audience on Wednesday. His remarks came minutes before Federal Reserve officials announced a third consecutive 0.75 percentage point rate hike, signalling "ongoing increases" are anticipated to tame inflation near a 40-year high.
Now, with some observers pegging the likelihood of a North American recession as high as 99.9 per cent, he's drawing a distinction between where the economy may be headed and previous downturns where oil demand turned negative.
"Let's remember that periods of negative [oil] demand growth are extremely rare," Nuttall said in a video update. "We're looking at really a moderation in demand."
"You have to go back to 2020 . . . when the world literally shut down. That was purely historic. You have to go to the great financial crisis, where the financial system ground to a halt," he added, citing instances where U.S. economic weakness resulted in negative demand for crude. "The sensitivity of oil to a declining economy is not nearly what it was in prior cycles."
The manager of Ninepoint's oil and gas-focused energy fund has become closely followed by retail investors impressed by his conviction as oil prices turned negative in early 2020, and the subsequent returns as oil prices rebounded above US$100 per barrel earlier this year.
Oil (CL=F) climbed on Thursday as concerns over tight supply appear to overtake recession fears. Shares of Canadian oil and gas stocks Suncor Energy (SU.TO)(SU) and Canadian Natural Resources (CNQ.TO)(CNQ) traded in positive territory on Thursday amid broader market weakness.
Nuttall has referred to declining oil inventories as the "compass" behind his multi-year bull market thesis, which also rests on declining U.S. shale growth, a lack of spare capacity from OPEC producers, and years absent investment in new production.
"We think that we're in at least a five to six-year cycle that will lead to higher energy prices. We define that as US$100 (per barrel of oil) or higher," he said.
"We need to come up with 10 million barrels of new productive capacity just to meet demand growth between now and the mid-2030s. The reason why I'm bullish on oil is I cannot identify where those barrels are going to come from."
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.