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WisdomTree Europe aks if oil still has a role as a diversifier


The recent recovery in the price of Brent Crude, which went above USD50 per barrel earlier this month, has prompted WisdomTree Europe’s director of research, Viktor Nossek to urge investors to take profits from oil, rather than be left at the mercy of speculators.

 “It was easy for investors to be bullish when oil traded below USD30, but given the scale of the recovery we have seen in the last four months, it is hard to make the case that oil looks undervalued now. Indeed, the recovery means it is now in line with its long-term historic price,” Nossek writes.
“As such, we don’t expect the price can be driven much higher from here based on the fundamentals. There is no reason to be bullish on the supply side as there have been few signs of disruption caused by geopolitical events, while demand is not growing because China’s growth rate is slowing.
“Oil still has its uses in portfolios as a diversifier, acting as it does in an uncorrelated way to both other asset classes and commodities, but investors must tread very carefully at this point in the cycle. It is also one of the most volatile investments because of the huge amount of speculation in the price, and currently more than a quarter of the market is owned by speculators who can change their views very quickly. Given many such investors have ridden the rally, there is a chance this flow into oil could reverse, and there are more attractive options out there for investors in other asset classes.”

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