Westhouse names Faroe, Genel and Ithaca as top picks amid oil volatility

Brent oil, which had fallen to a low of $47.68 a barrel last month, had recently recovered to the $60 mark, though that rally stalled this week after US stockpiles rose to a record high and the market reacted to worries about a rise in Saudi output.

“The reality is that it is easy to get lost in the day-to-day volatility and the noise. The big picture is that we’re still in an oversupplied market and this likely to be the case at least up until the end of the second quarter this year,” said Westhouse analyst Jamal Orzabayeva.

He said that the oversupply situation will probably improve in the second half, but it is unlikely that prices will return to $100 a barrel any time soon. Prices of $70-80 a barrel are more likely in the medium-to-long term.

Orzabayeva said: “‘Calling the bottom’ is, in a way, a fool’s errand and at best is just an educated guess. A more interesting question is do you need to ‘call the bottom’ to make an investment call on E&P stocks?”

He recommended investors build positions now and have a “realistic” investment horizon at least for the next 12-18 months.

Investors should also “cherry-pick” stocks that are protected in the near term by hedging or those with a low cost base or healthy balance sheet, he said.

The analyst also suggested that investors should choose stocks that can deliver upside on the current futures curve and have near-term operational catalysts coming up.

“Three stocks in my coverage tick these boxes: Faroe Petroleum, Genel Energy and Ithaca Energy. On a more speculative side, I’d also highlight EnQuest,” Orzabayeva said.