The big oil giants have been hit hard by recession fears. That is music to the ears of beleaguered consumers who have been paying $5 a gallon and more for gasoline in some parts of the country. However, according to the analysts at Goldman Sachs, prices likely will remain higher the rest of this year, and possibly beyond.
On Tuesday, both West Texas Intermediate and Brent crude traded down near the $100 level, and Wednesday they both closed below $100 for the first time since May. With that sell-off in the black gold, some of the top energy stocks were absolutely hammered. Given that the energy sector is one of the few up this year, there should be no surprise that profits were being grabbed.
Given the current tight market, and with OPEC production maxed out, the Goldman Sachs energy team thinks prices will head higher soon. They noted this in their research report:
Fundamentally, we find little catalyst for Tuesday’s move, with the morning offering instead news of rising geopolitical tensions in Iran and record strong Saudi OSP to Asia, reflective of strong crude demand by refiners. Case in point, front-month Brent time spreads, diesel and gasoline cracks all weathered the fall in flat price, only down slightly on the day. In fact, the most notable move in oil prices in the past few days was the strength in crude time spread and physical prices, reflective of a market still in deficit. This is consistent with our tracking of oil fundamentals, with an estimated global c.1 mb/d deficit in June, with China back to drawing inventories as well.
The analysts also noted this when discussing recession potential, which we are very likely in, albeit a mild one right now:
While the odds of a recession are indeed rising, it is premature for the oil market to be succumbing to such concerns. In addition, China’s demand rebound from its aggressive lockdowns is coming in ahead of our expectations, with its large stimulus further helping local demand improve later this year. As a result, we still expect that global oil demand will rise by a larger than seasonal 2.3 million barrels per day from second quarter 2022 to third quarter 2022 (at $120/bbl). This is what the oil market needs to solve for, with this demand rebound greater than the expected increase in supply in coming months. At the even lower spot prices, we estimate this deficit to reach 0.6 mb/d, an unsustainable outcome in our view given already record low inventory levels (versus our $140 a barrel third quarter 2022 Brent forecast which instead solves for no more inventory draws).
We screened our 24/7 Wall St. energy research database looking for big dividend, mega-cap integrated oil giants, and found eight top stocks with reliable, and in some cases outsized, dividends. All are rated Buy by many major Wall Street firms, and they can be bought in front upcoming dividend ex-dates.
It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
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This is one of the premier European integrated oil giants and the Goldman Sachs analysts are very positive on the shares. BP PLC (NYSE: BP) engages in the energy business worldwide. It produces and trades in natural gas; offers biofuels; operates onshore and offshore wind power and solar power generating facilities; and provides de-carbonization solutions and services, such as hydrogen and carbon capture, usage and storage.
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