Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

DRIVERS could soon be heading back to the pumps only to find prices have risen again. The oil price has recovered smartly off its August lows and is now back over US$72 per barrel. After a period in the relative doldrums amid signs of a slowing of global growth, Hurricane Ida has helped propel oil back close to its previous best levels for the year1.

That’s unwelcome news for motorists who have already endured a seemingly relentless upwards drive in fuel prices since late last year. Having risen nine months in a row, petrol prices could continue to rise this autumn, as tight global energy supplies meet a strengthening demand from consumers2.

The Ida tropical storm battered oil installations in the Gulf of Mexico at the weekend, raising concerns America’s hurricane season this year will, once again, prove far from benign. The Gulf area remains an important source of production globally, rich in both rigs and refining facilities.

A further factor unsettling European energy markets has been a shortage of natural gas. Gas prices hit record highs last month as the European economy continued to recover against a backdrop of reduced production capacity in the wake of the pandemic3.

To make matters worse, the completion of Russia’s Nord Stream 2 gas pipeline is imminent. The pipeline will export gas directly to Germany, bypassing Ukraine and Poland, raising uncertainty over future supplies to pro-western Eastern European nations.

On the subject of the global economy, the signs are the authorities are prepared to respond to any dip in growth inspired by the spread of the Delta variant of Covid-19 or, for that matter, any other threat. In China, the central bank has signalled that it is ready to ease credit conditions in some targeted areas of the economy after signs of a growth slowdown4.

Meanwhile, the world awaits a potentially immense release of government funds from President Biden’s US$3.5 trillion budget plan after the Senate approved a bipartisan US$1 trillion infrastructure bill in early August. US spending on infrastructure could have a sizeable impact on world energy needs for years to come.

While the world transitions to a future driven by renewable energy – and oil majors like BP and Shell continue to diversify their sources of production – a growing global economy should ensure the demand for oil and gas stays strong. Of course, higher oil prices make renewables even more competitive on a relative basis, so it’s a win-win of sorts for investors.

Being important constituents of the FTSE All-Share Index, BP and Shell find homes in many UK equity funds, be they focused on delivering growth or income or a combination of the two.

Fidelity Select 50 favourites Franklin UK Equity Income Fund and Liontrust UK Growth Fund both hold overweight positions in BP (3.3% and 3.1% respectively) compared with an Index weighting of 2.4%. These funds are neutral or slightly underweight Shell (4.6% and 4.2% respectively compared with 4.6% for the Index)5.  


1 - Bloomberg, 01.09.21
2 - RAC Foundation, 27.08.21
3 - Bloomberg, 06.08.21
4 - China Daily, 13.08.21
5 - FTSE Russell, 30.07.21

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. The Franklin UK Equity Income Fund and Liontrust UK Growth Fund invest in a relatively small number of companies so may carry more risk than funds that are more diversified. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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