From Barron’s
Goldman Sachs analysts Brian Singer and team explain why they’re still bullish on oil stocks like Diamondback Energy (FANG), Hess (HES), Encana (ECA), Continental Resources(CLR) and Whiting Petroleum (WLL) despite the fact that oil could stay around $35 for a while:
We view our 2Q 2016 oil outlook as an idealistic Goldilocks scenario – $35/bbl WTI is not too high and not too low but just right – above cash costs but keeping a too-early shale restart at bay. While we view recent supply data from both the US and OPEC as somewhere between in line and modestly bearish for prices, modestly bearish near term is not enough to change our Attractive coverage view for E&P equities. We would use volatility to add to positions of shale productivity winners and the next rung down.
Stick with shale scale and “next rung down”: We are willing to look through near-term volatility because prices of $30-$35 should keep behavior of US producers unchanged and accommodate $55- $60 per bbl oil in 2017, providing opportunity for equities. A rally to $45-$50 per bbl near term would reduce 2017 upside, but still be favorable for equities (at least temporarily). We continue to favor secular productivity winners (CL-Buy onEOG Resources (EOG), Diamondback Energy, and PDC Energy (PDCE)) as well as stocks in “the next rung down” (CL-Buy on Hess and Cenovus Energy (CVE), Buy on Anadarko Petroleum (APC), Encana, Continental Resources and Whiting Petroleum).
