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Canadian energy bull unfazed by Omicron's impact on oil demand

One of Canada's most bullish energy fund managers is reassuring investors, as the new Omicron variant pushes oil towards its biggest monthly price decline since the onset of the pandemic.

Eric Nuttall, senior portfolio manager at Toronto-based Ninepoint Partners, has braved stomach-churning 40 per cent intraday drops in the firm's roughly $860 million energy fund in recent months, as COVID-19 roiled global demand for fuel. Investors who resisted the urge to sell have been rewarded with a 168.45 per cent year-to-date return as of Monday, according to data from Morningstar.

Suncor Energy (SU.TO)(SU), Cenovus Energy (CVE.TO)(CVE), and Arc Resources (ARX.TO) are among the top holdings of Ninepoint's Canada-focused energy fund, which Nuttall has managed for about 12 years.

With fear on the rise again as health officials assess the danger of Omicron, Nuttall is advising investors to focus on the looming energy supply crisis that he predicts will send crude prices to record highs.

"When the panic and fear become palpable, the goal of an investor is to put emotions aside," he told a virtual audience at a Ninepoints event held on Monday.

Regarding the unfolding Omicron situation, he said: "I've already been on a couple of conference calls with epidemiologists, and everybody says the same thing; it's early days."

Nuttall says U.S. President Joe Biden's remarks on Monday that mass stay-at-home orders are not currently on the table for the world's largest economy is one encouraging sign for energy investors.

"[Biden is] saying that lockdowns and those types of really draconian measures are not the path forward," he said. "One would think any potential hit to demand would be very, very, very short-lived, and a fraction of a fraction of what we've had to endure."

He also pointed to research from Capital One Securities suggesting last Friday's drop in the price of oil effectively priced in a 4.2 million barrel per day drop in demand, 10 times the Delta variant's impact in the third quarter of 2021.

The price of U.S. benchmark West Texas Intermediate (CL=F) continued to track lower on Tuesday, falling 6.16 per cent to US$65.64 per barrel at 12:58 p.m. ET. Oil has slumped almost 20 per cent in November, nearing its biggest monthly loss since March 2020, when the onset of the pandemic crushed global consumption.

However, it's the supply side of the equation where Nuttall sees the strongest evidence that crude prices will hit all-time highs in the coming years, even in the face of the pandemic, and as nations increasingly seeking to lower their emissions footprint.

He points to a trifecta of slowing U.S. shale growth, OPEC running short of spare capacity due to insufficient investment in new production, and supermajors like Shell (RDS-B) and BP (BP) increasingly pivoting resources towards renewable energy. That, in combination with demand from a rising global population, underpins his expectations for a looming energy supply crisis.

"Even if we hit all government objectives, demand grows out till 2035," he said. "I actually think a plausible scenario is we reach peak oil demand, and the price keeps going up. That will blow peoples' minds. It has a very, very profound implication on what we should be valuing, and that's long-dated resource capacity."

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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