Edinburgh investment fund chief forecasts oil to fall to $5-barrel if battery-powered cars take off in mass market

By DARA BUTTERFIELD 

An Edinburgh trust fund manager has warned that oil could fall to $5-barrel if the automotive market abandons the internal combustion engine.

With electric cars making slow inroads into the market and the development of personal electricity storage from Tesla and its competitors, oil price could face an even greater decline in the future. Of course while mass adoption of those technologies would have huge implications for investments, it is unlikely to come for some time yet.

David Gait, the manager of AA-rated top performing sustainable investment fund Pacific Assets Trust, compared today’s energy company shareholders to 19th century investors in the whaling industry when confronted by paraffin and other oil products.

He said: “Whales provided a great source of light and energy for 100 years but in 1860 the discovery of a less smelly alternative saw it collapse by 90% very quickly.”

With oil prices still reeling from the recent crash and solar-power costs continually decreasing Gait warned that his $5 figure actually looks more likely than oil reaching its previous levels, saying:

“It’s much more likely oil will hit $5 than $100 because of the collapsing solar price curve.”

Crude oil prices have recovered a little but are struggling to make headway in the face of subdued demand and oversupply. If -as Gait – suggests that the advent of portable energy storage systems such as Tesla’s Powerpack, or its rival Powervault is hinting at an era of carbon-free energy – the cheap storage revolutionising the use of solar – then oil prices could never truly recover.

With volume car makers like BMW planning electric powered versions of all their models, Gait said it was time to consider the end of the internal combustion engine. He said he had no idea when that might happen but stressed the importance of reviewing his investment trust’s stakes in companies that could be affected.

Benchmark N. Sea Brent crude ended 2.5% lower at $45.46 a barrel on Friday. It hit a low of $45.07 and threatened to break below $45 a barrel for the first time since March 2009.

With deepening gloom over demand growth from the world’s second-biggest oil user, and expectations for a significant build-up in surplus oil stocks this autumn, dealers said most oil traders were unwilling to fight the tide.

“The market is stuck in a relentless downtrend,” said Robin Bieber, a director at London brokerage PVM Oil Associates. “The trend is down – stick with it.”

Gait was born in Edinburgh and holds a BA in Economics from Cambridge University and an MSc in Investment Analysis from Stirling University. He joined Stewart Ivory in 1997, the predecessor to First State Investments.

He is responsible for evolving the emerging markets and Asia Pacific strategies and is the lead manager on the First State Asia Pacific Sustainability and First State Indian Subcontinent funds. He has been managing funds for over 11 years – including the £200 million Pacific Assets Trust.