Crude prices have been rallying to values not seen in years, and supply and demand appear to have come more into balance. These factors typically would lure investors to the E&P space once more. But are they? What are investors thinking as we head into this last quarter of a turnaround year?

Bernstein Energy polls energy investors quarterly about their sentiments regarding the oil and gas industry. The firm recently released its third-quarter Energy Investor Sentiment Survey, noting that players in this space are “resoundingly bullish” on oil prices. Some 177 investors returned responses to the poll.

Nearly all—95%—of investors think crude will exceed $60 over the course of 2019, with 54% looking for oil prices to top $70, a peak not reached since early 2015, according to the report. Just two quarters ago, expectations were not nearly this optimistic as reflected in forward curve outlooks. At that time, only 64% thought prices would stay above $60/bbl in year two. Now the overwhelming majority of forecasts are for oil to be 19% above the forward curve in year 2.

Natural gas is a far different story, not surprisingly, given abundant supply. “Expectations for short-term gas price consolidated into the $2.50 to $3/Mcf bucket with 70% of the votes,” according to the Bernstein report. “The higher bucket of $3 to $3.50/Mcf received 18% of the votes, up from 17% earlier. “The analysts summed up the natural gas sentiment as investors having “thrown in the towel on the gas bull case.”

Crude differentials have been a thorn, particularly in Permian producers’ sides, as takeaway capacity lags. This quarter’s survey found investors’ outlook for the WTI to Midland spread decreasing mostly from a weighted average of $8.05/bbl in the second quarter to $7.31/bbl. For the longer-term Brent-WTI spread, investors boosted their calls from $4.50 to about $5.20.

What’s going to drive global crude prices going forward, according to energy investors? Global demand, followed by global inventories. Investors were less concerned about supply but more focused on political risk—“which does not come as a surprise, given the Iran sanctions situation,” according to the report.

Investors are most interested in the upside of putting money into E&P stocks and funds (40%) with the arrival of fall, although offshore drillers (10.9%) gained “quite a bit of share this quarter,” the report noted. Pressure pumping and refiners also gained favor. The responses revealed that completions-related activities are perceived as containing the most upside, and offshore the least.

As they sort through options, energy financiers value strong balance sheets, with EV/EBITDA considered most critical, followed by momentum and ROE, the Bernstein analysts said.

Onshore