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https://www.barrons.com/articles/oil-prices-are-spiking-one-analyst-thinks-the-rally-could-end-51614877275

Wall Street is increasingly agreeing that oil prices will remain high and energy stocks can continue to rise.

As OPEC is expected to continue to adopt easing policies and oil prices soared, this confidence was reaffirmed on Thursday. But not everyone believes it. Gabriele Sorbara, an analyst at Siebert Williams Shank, wrote before the OPEC meeting on Thursday that oil prices may fall - and limit some of the recent moves in the industry’s stocks

He said that the "normalized" price environment will bring West Texas Intermediate Oil back to $55 per barrel. He believes that the price of one thousand cubic feet of natural gas will rise to US$2.75 (or US$2.85 per million British thermal units, which is a measure used in the futures market.)

On Thursday, West Texas crude oil futures rose 2.1% to US$62.54 per barrel, and natural gas fell 1.9% to US$2.76 per million British thermal units.

Oil is on the rise because OPEC and its allies may increase production to the market more slowly than investors expected-this increases the likelihood of shortages in the coming months.

Chris Midgley, head of global analysis, said: “Finally, the market said yesterday that it was looking for signals for an additional 1.5 million barrels per day in April, and OPEC tested its response to the reduction, which led to an increase in oil trading.” At Standard & Poor’s Global Platts Energy Information. "If daily production is less than 1.5 million barrels, is it too late for OPEC to add oil to the market before the summer demand surges."

Sobara agrees that if OPEC extends its production cuts, it can help maintain high oil prices, but he believes that if there is no more evidence that demand recovers, oil prices will not be able to rise in the future. 

The analyst believes that investors can still make money from oil and gas stocks, but they must proceed with caution. Oil and gas companies face regulatory risks from Biden's government initiatives that may affect the use of pipelines and drilling on federal land. Sobara warned that the cost of oil services could rise as commodities rise, eroding profits. 

He advises investors to pay attention to higher-quality names.

He wrote: “In terms of the quality of underperformance and relative value in the past few months, it is wise to be more cautious in positioning defensively.” His top choices are German Energy (stock code: DVN), PDC Energy ( PDCE), Cimarex Energy (XEC) and Rattlesnake Energy (FANG). He said Devon and the Rattlesnake "stand out as the beat story of 2021."

  However, after the recent outstanding performance of the stock, Marathon Oil (MRO) lowered its valuation from buying to holding.

Devon’s valuation is lower than that of its peers, and Somara believes the company can navigate new federal rules that may restrict drilling on federal land because it has stored permits for four years. His target price is $29. Devon County rose 2.3% to $23.21 on Thursday.

The Rattlesnake is also cheap for Sobara, because its guidance for 2021 looks conservative, and if it exceeds expectations, the stock price may rise. His target price is $89. The stock rose 9.8% on Thursday to $81.74.

However, Sorbara pointed out that even if the economy cannot prove that the rally is likely to continue: "A weak U.S. dollar, inflation risks, and capital flows (including the continued shift to small-cap and value stocks) may add momentum to this momentum, regardless of fundamentals. Promote higher commodity prices and industries."

Write to Avi Salzman at avi.salzman@barrons.com

Wall Street is increasingly agreeing that oil prices will remain high and energy stocks can continue to rise.

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