By Dominic Lau
LONDON (Reuters) - The price of oil, which hit a new record high above $88 a barrel on Tuesday, can rally further and may reach $150 before 2010, the fund manager for Investec's Global Energy Fund said.
"The reason why it has potential is the underlying supply and demand fundamentals are causing a serious crunch in oil markets," said Tim Guinness, chairman of Guinness Asset Management, who runs the Investec Global Energy Fund.
Guinness, who was chairman of Investec Asset Management for four years before he retired in 2002, said strong demand from developing countries was emulating that of the developed world from 1950 to 1970.
"It's comparable to the demand growth we saw between 1950 and 1970 in the OECD countries ... We are seeing that again generated by China, Asia ex-Japan and India," he said.
"It boasts very strong potential demand growth for 10 to 15 years if the developing world continues to grow 5 percent per annum. As far as I can see that's a reasonable scenario."
The Investec Global Energy Fund has $2.2 billion in assets and has handed investors 30 percent returns so far this year. Investec outsourced management of the fund to Guinness after he left the company to found Guinness Asset Management.
Guinness, a member of the Guinness family behind the Irish beer, said: "On the other side of the coin, non-OPEC supply is proving extremely hard to grow ... The growth that we are seeing in Caspian, West Africa, Brazil, non-conventional Canada is simply not enough to meet the extra (demand)."
"The demand for oil is so important for transportation, and transportation is so important and relatively inexpensive that the oil price may have to go to $150 a barrel to really dent the demand," Guinness said.
"Before 2010 it (the oil price) will go above $100, probably to around $150," he added.
The 60-year-old fund manager, who cycles to work on his Brompton folding bike, said his fund historically preferred independent oil, refinery and exploration and production companies but large oil and gas companies, which have underperformed, would benefit from a higher crude price.
Among his top picks are Exxon Mobil Corp, Chevron, ConocoPhillips, Eni, Total and BP.
"The experience in the 70s was that from 1974 to 1977, large oil and gas companies traded at a 40 percent discount to the broad market. It took time for investors to get used to a high oil price. From 1976 to 1978 the discount disappeared," he said.
"I think that's what we are going to see here."
Guinness said a strong run by U.S. independent refineries, such as Tesoro Corp and Valero Energy, also indicated that big cap oil companies would perform well.
"What that has been signalling is that the refining business has at last thrown off the very bad economics it had for 20 years from 1985 ... There was a huge overhang of refining capacity around the world that was built to the last oil boom."
Guinness also said he continued to like companies with exposure to oil sands and held a coal stock as China's consumption of coal had doubled in the last seven years to 2 billion tonnes a year.
