OREANDA-NEWS. November 24, 2011. Nothing is certain but death and taxes. As analysts and financial commentators battle to predict the market’s course in the midst of tremendous oil price, share price and global economic uncertainty, we offer six investment scenarios (four of which are the most conceivable), to suit a range of possible oil prices, levels of macroeconomic stability and geopolitical concerns. We also revise our ratings and target prices to incorporate recent sector changes while articulating the latest triggers and risks.

Given expected volatility for the oil price, Russian oil and gas stocks, and the global economy, considerable doubt remains about how closely the market will ultimately reflect fundamental values. Russian oil and gas stocks performed relatively well in the 2008 crisis and we continue to like their defensive characteristics. Moreover, oil stocks remain among the best dividend payers in the Russian market, which we feel is a real attraction when investors elect to ignore fundamentals.

Our base case is a mildly bearish oil price assumption (our mid? and long?term \\$90/bbl forecast for Dated Brent is unchanged). We believe the current price incorporates a sizable political premium (due to possible conflict involving Iran), and in our view the market is underestimating potential demand destruction from the high oil price and the effect of slowing developing market demand. We expect the spread between WTI and Dated Brent to narrow towards WTI rather than Dated Brent but irrespective, anticipate much sentimental volatility on the oil market next year. We point out, however, that oil companies are to an extent shielded against oil price declines. We estimate that when the oil price rises by USD 1, a company’s marginal take from the extra dollar is about 10% under the current tax regime. However, when the oil price falls by the same sum, a company loses only 7%.

We continue to favour names offering decent dividend returns (TNK?BP, Surgutneftegas, Bashneft) along with the growth stories (NOVATEK, EDC). Irrespective of whether the economy degenerates into a full-scale recession or simply languishes along indefinitely, we believe dividend returns are likely to remain on investors’ radars. Our view is that 2011 dividends are in little jeopardy unless the oil price approaches USD 40?50/bbl, which appears improbable at present. In terms of growth, we believe both NOVATEK and Eurasia Drilling, which face no funding issues, typically a limiting factor, could outperform their peers. The two names have solid track records of delivering sustainable growth and NOVATEK’s increasing political favour should smooth the way up, in our view.