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

In addition to being bullish on commodity stocks, Goldman has also hiked its oil forecast, and on the back of the abovementioned market "tightness" Goldman now expects Brent prices to reach $65/bbl this summer as opposed to year-end, here's why:

With vaccines being rolled out across the world, the likelihood of a fast tightening market from 2Q21 is rising as the rebound in demand stresses the ability of producers to restart production. While higher prices pose the risk of a shale response - as WTI spot prices are now at $50/bbl allowing for higher activity and positive free cash flows — we see this response remaining muted in the first instance, as higher capital costs and producer discipline curtail the US E&P’s reaction function. Moreover, OPEC+ March production level will still be near the recent lows just as global demand starts rebounding sharply driven by warmer weather and rising vaccinations.

As Goldman concludes, this suggests that the traditional bogeyman of higher oil prices - shale production - won't be a factor immediately as it "struggles to ramp-up output quickly enough, with our balance currently reflecting a 1.3 mb/d deficit in April-July despite OPEC+ increasing production by 4 mb/d, a historically tall order."

In summary, Goldman recommends a long Dec-21 Brent trade (currently trading at $53/bbl vs. our $65/bbl forecast) and expect sustained backwardation and lower implied volatility.

Finally, it is also worth noting that Exxon is also surging on the back of an upgrade from Morgan Stanley (which follows a similar upgrade from Goldman) to Overweight, making it the bank's top pick over Chevron:

(Click on image to enlarge)

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