Bernstein Research reports E&P professionals expect oil and gas prices to average $78 per barrel and $5.18 per thousand cubic feet, respectively, during the next 12 months. The research firm completed its latest quarterly investor-sentiment survey in early June, receiving 191 responses.
Senior analyst Ben Dell says oil-price expectations fell sequentially after four straight quarters of increases. On a weighted average basis, the next 12-month price expectations were down 5% from the first quarter and just below the survey week’s strip price of $79. On a two-year basis, expectations averaged $90 per barrel, down 3%, with 62% of investors expecting prices in the range of $80 to $100.
Expectations for gas prices for the next 12 months fell 5% despite a 3% rise in the gas strip since Bernstein’s last survey. Dell says the two-year sentiment fell as well, down 4% from $6.36 to $6.08 per thousand cubic feet.
Expectations for both oil and gas prices differed from strip pricing by only 1%, according to Bernstein, while the standard deviations of two-year commodity expectations were at their lowest point since the firm began the survey. Dell says this suggests a record agreement among investors about the outlook for energy.
Despite declines in gas-price expectations, gas E&Ps gained momentum among respondents when asked which sector had the most upside, according to Bernstein. Dell says, “Perhaps investors believe the low-price environment during the first half of the year will be an impetus for operators to be more disciplined with capital and cease drilling uneconomic wells. The gas E&Ps were second to oil services, which was cited most frequently but lost ground in the quarter from 29% to 23%.”
The percentage of respondents choosing oil-weighted E&Ps fell to 18% compared to 24% from the prior survey.
Net asset value remained the main driver of energy share prices in the survey, but momentum increased in popularity to take second place. Global spare capacity remained the main driver of crude prices, while Saudi spare capacity and global inventories continue to be among the least picked.
Marginal cost of gas is currently more than $7 per thousand cubic feet and prices below this level aren’t likely to persist long-term. Bernstein remains bullish on the outlook for oil and gas prices and sees considerable upside for E&Ps.
“We continue to recommend gas E&Ps with low cost structures or those names with the flexibility to divert capital spending to liquids in the near-term while maintaining leverage to rising gas prices. Top picks include Range, Southwestern, Anadarko, EOG, Newfield and Talisman, all rated outperform.”
Dell concludes that while the first-quarter survey suggested record agreement among investors about gas prices, the current survey shows greater conviction for both gas and oil commodities.
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