It was a hot July in 1969, when Blood, Sweat & Tears immortalized the phrase "what goes up, must come down" when their hit song "Spinning Wheel" got all the way to #2 on the charts.
Today, more than 40 years later, it is still hot and July but that famous phrase looks set for a slight revision, at least as it applies to the price of oil and the outlook of fund manager Tim Parker. If there were a new version, it might go something like "what goes up, could come down, but not for long."
"Despite the high (crude) prices we saw earlier in the year" the T. Rowe Price New Era Fund (PRNEX) manager says, "developing markets like China, India etc really didn't show any break in demand." This is why he is "constructive" on oil for the medium-term, can't rule out a decline in the short-term, but worried about the longer term when he thinks prices will reach an "untenable" level of $150 a barrel again, perhaps not until 2014.
"There's always risk to the demand side. If there's another global financial crisis, demand will fall sharply," Parker says while acknowledging about 55% of his fund is invested in Energy sector stocks (XLE). Ultimately, he says when oil prices reach those record-high 2008 levels, "you price out demand" but that's a problem for a later day.
"This is a multiple year trade ahead for oil I don't think we're talking a year or two. More like 2, 3, or 4 years," says Parker.
In the meantime, he prefers the Oil Service (^OIH) plays at this phase of the cycle and fittingly Schlumberger (SLB) is his single biggest holding, accounting for 5% of his portfolio.
He says offshore and international spending growth will benefit the world's largest oil services company and feels that a better strategy than speculating purely on the direction of crude.
Parker says "oil prices can go higher but not double or triple like a few years ago, so it is better to rely on the cash flow of companies rather than the price of oil to drive earnings higher."
FMC Technologies (FTI) is another top services holding he likes.
He also likes the long-term prospects for Natural Gas, especially companies that deal with LNG due to its exposure to the kitchens of Asia. Here a name like BG Group (BG.L) makes the cut. Parker calls the formerly named British Gas "the world's largest freelance LNG player" that also has fast growing oil and gas exploration and production portfolio. "So you got that strong cash flow from the LNG business which gives it the flexability to spend. It's just a really well manged well positioned company," he says.
This on a day when analysts are saying BP (BP) would be worth much more if broken up and sold piece by piece; a valid but unlikely scenario according to Parker.
"I don't think it's likely. BP has too proud a culture. If they were to do it, they would have done it at the heights of Macondo (Gulf of Mexico spill)". He also says the idea of raising tons of cash then having "plaintiffs come after me" makes a break-up unappealing and unlikely too.
He says he doesn't currently own BP but probably will at some point in the future. He does, however own major oil names like Royal Dutch (RDS-A), Chevron (CVX), and Exxon Mobil (XOM).
"I own them partially for that stability, that ballast there is a lot of volatility in natural resources and I like those good dividends and strong balance sheets to mute some of that volatility. It just takes a little bit of that churn out of my stomach," says Parker.
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