While the world’s economic prospects remain shaky, oil prices are supported by factors unaffected by sluggish growth meaning that oil exploration and production companies are an attractive investment, according to Angelos Damaskos, chief executive of Sector Investment Managers and fund advisor to the Junior Oils Trust.

Damaskos points to three factors underpinning demand for oil, the first of which is the Japanese nuclear disaster earlier this year having pushed the country back to a dependency on oil and coal for power generation.

Supply constraints are the second supportive factor, says Damaskos, who notes that Libyan oil is still 70 per cent offline and the country’s political instability is unlikely to allow full production to resume in the near future.

The most important supportive factor however is the fallout of the so-called “Arab Spring”, which has acted to destabilise the Middle East and has forced both governments and monarchies to up spending to quell civil unrest. As such, Middle Eastern nations need oil prices to stay above $100 per barrel to keep morale high among the populace.

In light of these factors, Damaskos believes that oil prices will be supported at current levels – even if Asia growth slows – and this is good news for exploration and production companies controlling significant reserves. These firms may have shown weak share prices in recent times off the back of depressed market sentiment and general risk aversion but they are still generating growing cashflow and profits, he says.

“For those companies at a development stage, industry majors and specialist investors are bound to seize the opportunity and inject much-needed capital.  In the current 10-year secular uptrend for oil, there have been only a few occasions when stock market valuations have undervalued real assets by a large margin. The opportunity for investors is in selecting those companies with real recovery prospects among the many that may find it difficult to raise financing for marginal projects,” said Damaskos.