Shares in oil companies have underperformed the recent oil price rally, so some of those stocks are set to rise in a long-term oil price of $50-55, according to Goldman Sachs.
“The headwinds for the equities have now largely played out: energy has been the worst performing sector in MSCI World, with relative performance of energy equities in the US & Europe lagging their normal relationship with the oil price,” Goldman Sachs analysts said in a note on Monday, as carried by The Street.
In the third quarter, Brent prices rose by some 20 percent to post their strongest Q3 performance since 2004, while WTI prices saw their strongest Q3 in 10 years. Also last month, oil prices returned to a bull market after having increased more than 20 percent from the lows in June.
Oil companies’ shares, on the other hand, have lagged the performance of oil prices in recent months, and therefore have room to rise, according to Goldman.
Among U.S. producers, Goldman’s top pick is RSP Permian (NYSE:RSPP), to which the analysts have assigned a 12-month price target of US$44, which is a 27-percent upside potential compared to Friday’s closing price at US$34.59.
The 12-month price targets that Goldman has on EOG Resources (NYSE:EOG) and Diamondback Energy (NASDAQ:FANG) are each 14 percent higher than their current share prices. Chevron (NYSE:CVX) has a 12-month price target of US$123 with Goldman Sachs, compared to Chevron’s Friday closing price of US$117.50.
“We...prefer shale-scale winners with good track records of execution: EOG continues to stand out among the large caps, with FANG and RSPP preferred from our mid-cap coverage,” The Street quoted Goldman as saying.
Goldman Sachs has also recently turned bullish on European majors and on Big Oil’s competitive positioning.
Referring to the European majors, Goldman said, as quoted by The Street:
“Risk-reward is therefore skewed to the upside in our view, with strong 3Q results, capex cuts and scrip removal the main catalysts.”
By Tsvetana Paraskova for Oilprice.com