Each Friday, corporate advisory firm Barclay Pearce highlights the key trading themes of the week, along with which companies and sectors Stockhead readers should be keeping their eye on.

A clear investment narrative is taking shape as markets head into the end of the year.

Rewind six months, and fund flows tied to the ‘reopening trade’ presented a more bullish outlook for commodities.

As the world emerges from the pandemic, that bullish momentum has morphed into what now looks more like an energy crisis.

For Trent Primmer and the investment team at Barclay Pearce, oil is the trade that’s paid.

“A few months ago, we made a call that Brent crude would hit US$100/barrel and a lot of people thought we were crazy. But it’s starting to come to fruition now,” Primmer told Stockhead.

In his latest interview, Primmer said global energy markets have ended up in a bit of a “Catch-22” in the post-COVID economy.

On the one hand, the clean energy shift has driven more capital flows towards renewable projects.

On the other, oil & gas demand is picking up in the wake of a five-year structural downturn in supply. Fossil fuel investment was deemed either uneconomic or not conducive to ESG sentiment.

“Those fossil fuel sectors — coal and oil & gas — have had difficulty attracting funding in an ESG-focused world,” Primmer says.

“But for the short-term at least, fossil fuels still provide around 80% of the world’s energy.”

The oil & gas trade

As Brent crude prices rose above oil & gas, the Barclay’s investment team dialled in on large cap plays Woodside (ASX:WPL) and Beach Energy (ASX:BPT), Primmer said.

“We’ve favoured WPL because of its exposure to LNG. They’ve got some of the largest and highest-quality LNG projects globally,” Primmer said.

“I started accruing WPL when it was sub-$21. Beach Energy is another oil stock that’s really rebounded and we’ve been buying it on the way up.”

Primmer said the Barclay Pearce strategy is to focus on a targeted strategy, rather than seeking broader exposure to the macro move in oil prices.

“As traders, we’re not building an ETF,” he says.

“The goal is to make two or three high-conviction investments and build larger positions on price weakness when we can.”

“Pick a theme, pick a company that you feel has the best exposure. Doing your research and sticking to it will carry you far in this market.”

The clean energy trade

Of course, within the complex make-up of global energy markets, the green transition is still underway.

Uranium is no longer a dirty word — especially since Sprott started buying physical units of the stuff in August.

“On the uranium side of things, Deep Yellow (ASX:DYL) is one of the larger positions our guys have been accumulating,” Primmer said.

Barclay’s is also getting uranium exposure through Paladin Energy (ASX:PDN) and Peninsula Energy (ASX:PEN). But in line with the group’s targeted strategy, “that’s about it”, Primmer said.

Barclay’s is also working with a number of pre-IPO companies who are developing green energy solutions, with a focus on hydrogen technology.

Referring back to his ‘Catch-22’, Primmer said investors can expect to see “a flurry of renewables companies hitting the market”.

And when it comes to the clean energy transition, Primmer said investors should be focused on the latter part of that equation — a transition.

“A lot of people are kicking up a fuss where these projects are coming to market and they’re not fully green, 100% zero emissions,” he said.

“But it’s like any sector — you’re going to have first-movers that aren’t 100% green.”

“It’s still a step in the right direction. And as traditional fuel sources taper off, the long-term opportunity will be there for renewables companies that have developed those clean energy processes.”

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.

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