The last 6 months have been mixed for the resources sector. While the share prices of companies such as Rio Tinto plc (LON:RIO) (RIO.L) and Glencore PLC (LON:GLEN) (GLEN.L) have risen by 16% and 27% respectively, other resources companies such as BP plc (LON:BP) (BP.L) and Royal Dutch Shell Plc (LON:RDSB) (RDSB.L) have registered falling share prices. For example, BP is down 9% and Shell is 6% lower.
In my opinion, the oil & gas industry could have a bright future. Therefore, I’m optimistic about the outlook for the BP and Shell share prices. I think the reduction in supply by OPEC and non-OPEC countries may allow demand to catch up to supply. This could put positive momentum into the oil price and lead to improved profitability for both companies.
Similarly, I’m upbeat about the outlook for Rio Tinto and Glencore. In the case of Rio Tinto, I think it has relatively sound finances which I believe could provide it with a relatively strong and sustainable profit outlook. If the commodity sector experiences a challenging period, the company’s relatively low debt and strong FCF could come into play and allow its share price to perform relatively well.
I also feel Glencore’s current strategy is the right one to have at the moment. It has reduced debt levels and become a more efficient business. This has created a lower risk business in my opinion which is better placed to cope with what may be a volatile period for the mining sector.
Overall, I think BP, Shell, Glencore and Rio Tinto have investment appeal for the long run. While relatively risky, I am optimistic about their share price performances in future. The operating environments they face and their business models suggest to me they may register improving share price performance over the long run.