Oil prices will rise in the long term, and natural gas prices will fall, reports Ben Dell, senior analyst for Bernstein Research, based on the research group’s quarterly investor-sentiment survey. Participants believe, however, that oil prices will fall and natural gas prices will rise nearer term, during the next 12 months, he says. The survey was of 292 buysiders, energy analysts and industry members. Among the buyside members, 52% are buyside analysts and 43% are portfolio managers; some 10% are responsible for energy-specific funds. Most of the total survey participants believe oil prices during the next 12 months will average between $90 and $100; gas prices, between $8 and $9 per million Btu. “The responses for the near-term oil price were only slightly lower than last quarter, despite a 21% decrease in the oil strip, but the responses for gas were sharply lower than last time, reflecting the 33% decline in the gas strip over that period,” Dell says. Most participants believe spare global oil capacity, the cost of surfacing supply and the growth of emerging markets is driving oil prices. But, compared with the previous quarterly survey, fewer participants now believe in emerging-market growth and few cited capital flow the industry as drivers. Far more cited capacity and E&P costs as fundamental to oil prices going forward. “It seems to us that the market is returning to a fundamentally driven crude price, or is at least perceived to be doing so.” He adds that the favored energy subsectors are gas E&Ps and oil-service stocks, followed by integrated oils, offshore drillers and oily E&Ps. “Land drillers, constructions companies, refiners and utilities remain out of favor.” He recommends XTO Energy, EOG Resources, Halliburton, Baker Hughes, Anadarko Petroleum, Apache Corp., Weatherford International and Newfield Exploration. “One interesting thing to note over time from the surveys conducted is whether investors' oil- and gas-price forecasts are above or below current pricing, which implies whether respondents believe that oil and gas prices are overvalued or undervalued. For oil, our respondents indicated in each survey that the oil price was too high and would come down, particularly during the second-quarter 2008 survey, when the most common choice for the 12-month oil price was $100 to $110, despite the fact that oil was trading at nearly $140. “This quarter, investors believe that the actual oil price was 14% above where it would be in the coming year, which is in line with the first two surveys we conducted. “In contrast, while survey respondents thought gas would fall during each of the three previous surveys, twice by nearly 20%, our respondents now for the first time think gas looks cheap and will rise over the next 12 months. This implies that our respondent base now believes in a move towards convergence of oil and gas prices, where the oil price falls and the gas price rises.” –Nissa Darbonne, Executive Editor, Oil and Gas Investor, A&D Watch, OilandGasInvestor.com; ndarbonne@hartenergy.com