BMO In a research note titled History Doesn’t Repeat but It Often Rhymes, equity analysts at BMO Nesbitt Burns lowered their oil price forecast for 2023 and 2024, leading to a series of target reductions to stocks in their coverage universe on Monday.
“Crude oil prices plunged as the recent banking crisis amplified fears of a global recession that could lead to weaker oil demand,” they said. “Recessionary fears have been weighing on oil prices over the past six months as interest rates have risen. We believe that the current oil market reflects ‘peak pessimism,’ due to the uncertainty over global oil demand and that crude oil prices could strengthen over the second half of 2023 as global oil demand improves, outpacing supply and shifting the supply-demand balance to a deficit. Our outlook assumes a moderate recession leads to a year-over-year decline in OECD demand, but overall demand grows thanks to rising non-OECD demand, especially in China. We believe that rising oil prices should re-focus investors’ attention on the strong free cash profiles and expectations for higher cash returns.”
Their target changes include:
- Cenovus Energy Inc. (“outperform”) to $30 from $32. The average is $32.84.
- Imperial Oil Ltd. (“outperform”) to $84 from $85. Average: $78.63.
- MEG Energy Corp. ( “outperform”) to $25 from $26. Average: $25.
- Topaz Energy Corp. (“outperform”) to $28 from $30. Average: $28.83.
- Tourmaline Oil Corp. ( “outperform”) to $78 from $85. Average: $89.07.
- Vermilion Energy Inc. ( “market perform”) to $22 from $23. Average: $29.81.
“We remain bullish on the outlook for oil and gas equities over the second half of 2022 based on our expectations for a continuation of strong (or even stronger) commodity prices and a concomitant increase in distributions to shareholders. Our top recommendations are Canadian Natural Resources, Chevron, Headwater, Hess, Parex, Pioneer, Suncor, and Tourmaline,” the firm said.