A slippery trade: oil slump proves bears right

The latest collapse in oil prices has proved some investors right in their lack of confidence in energy stocks this year.

Crude prices surged to a four-year high early in 2018 as tensions with Iran and OPEC supply cuts raised concerns that global oil supply was dwindling.

But the narrative has flipped since October as worries over a global trade war and rising U.S. shale oil production mounted, driving oil to a one-year low on Friday. Brent crude is down to $60 a barrel from a peak of $85 in early October.

While oil majors have gone some way to cleaning up their balance sheets since the 2014 oil price collapse, their shares are still sensitive to moves in the underlying commodity - higher crude spells stronger revenues.

When prices were climbing earlier this year, big banks were recommending investors buy back into the sector. Many, especially in Europe, followed that advice.

But given the latest falls, some of those who sat on the sidelines believe their caution has been rewarded.

Kevin Gardiner, global investment strategist at Rothschild & Co Wealth Management, said he was happy not to have piled into the bullish oil trade, having considered it earlier in the year.

"Just as the ink was drying on the bullish stories on the oil price, we turned around and a sector that was looking intriguing is now looking much less so, at short notice," said Gardiner.

"You have to be really careful with commodities, because it's a market timing story," he added.

Investing in European oil stocks at the start of this year would have been very lucrative - if you had had the foresight to sell at the October peak.

That would have delivered a solid 15 percent return, not to be sniffed at in a building global bear market.

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