Energy Stocks Jump After Goldman Hikes Oil Price Target To $65; MS Overweights Exxon

In a day when tech stocks are hurting, with both the S&P and DJIA red on the day (if having recovered much of their early losses), it is energy names that are outperforming on Monday, with Exxon XOM surging over 3% above $47, the highest price since June, thanks to strength in oil and an upgrade from Morgan Stanley (see below) which just upgraded the company to Overweight, making it a top pick over Chevron CVX.

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A reason for the rise in energy names is the continued strength in oil, with Brent trading as high as $56.39...

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... which in turn is up on the back of a report published by Goldman's chief commodity strategist Jeffrey Currie who writes that "the events of last week substantially reduced the downside risks to our bullish commodity narrative — a fact reflected in the rise in oil and copper alongside the sharp decline in gold."

First, Saudi Arabia agreed to a unilateral production cut that neutralized current lockdown risks but more importantly set the stage for a tighter market as the vaccine roll-out accelerates this spring.

Second, the Democrats’ win in Georgia tipped US politics toward Redistributional and Environmental policies which are central in to our REV (Redistributional, Environmental and Versatility) policy-driven structural rise in commodity demand thesis.

Third, EM governments around the world are looking to ensure the Versatility in their commodity supply chains - particularly in agriculture. Their efforts to secure domestic supplies have exacerbated the fundamental tightness in grains, with Argentina banning corn exports, Russia putting an export tax on wheat, and China emphasizing the requirement for strategic stockpiles of grains and pork in its latest 5-year plan.

These three drivers have helped propel commodities up 24% since November, and "while the recent rally reinforces our October call for a structural bull market, we believe the Democratic sweep and Saudi production cut have left commodity markets with a tighter medium-term outlook, leading us to raise our 3/6/12 month forecast for the S&P GSCI ER to 200/207/208 from 183/189/205, generating commodity returns of 6%/9%/10%, as we pull forward forecasted oil market tightness, raise metals demand forecasts and incorporate lower agriculture yields" according to Goldman which adds that "given the magnitude of the recent rally, however, markets are likely to consolidate near-term."

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