Energy stocks tipped for multi-year rally as oil climbs In a...

Energy stocks tipped for multi-year rally as oil climbs

In a bullish report on Tuesday, Morningstar analyst Mark Taylor raised the firm’s oil price target and tipped double-digit gains for Santos, while his fair value estimates for Woodside Energy, Beach Energy, and Karoon Energy are more than double their current share price.
“Despite near-term oil price weakness from OPEC+ hiking production and a potential supply glut next year … oil demand’s future ultimately comes down to whether substitutes reach cost parity,” Taylor said.
“While electric trucks will hurt freight demand, ships and aircraft will remain mostly unaffected by electrification. And gas-burning vehicles and hybrids have seen a persistent gap between real-world and official fuel efficiency.”
This, he said, boded well for energy stocks.
The Morningstar analyst lifted his fair value estimate for Santos to $9.60 from $9.50, which implies a rally of more than 26 per cent from the current share price of around $7.63.
He added that the price target would have hit $10.50, were it not for an Abu Dhabi-led consortium’s proposed $8.89 per share bid. Woodside’s fair value was upped to $44.20 from $42.60, almost double its current $24.17 share price.
He’s also upped his fair value estimate for Beach Energy, a mid-cap oil and gas producer part-owned by Kerry Stokes’ SGH, to $2.60, while Karoon has been increased to $2.75, up from $2.65.
UBS analyst Tom Allen on Monday named Santos as his “most preferred” ASX energy exposure with a “buy” rating on the stock and a share price target of $8.30, but has “neutral” ratings on Woodside and Beach Energy, with share price targets of $22.70 and $1.20, respectively.
That’s because Allen has forecast LNG prices to decline from around $US13 per million British thermal units this year, to $US10.50 in 2027 and $US8 in 2030. He also said Woodside was trading at an implied oil price of $US69 a barrel, while Santos was trading at an implied price of $US63.
“We expect companies with significant exposure to spot gas prices, such as Woodside, to face pressure unless mitigated with stronger contracting arrangements,” Allen said.
IG market analyst Tony Sycamore said that beyond the Ukraine drone strikes, crude oil prices had also been supported by a weaker US dollar, driven by expectations of a Federal Reserve rate cut this week.
“Crude oil appears to have found a new trading range, with the upper boundary formed by the early September high of around $US66 [per barrel] and reinforced by the 200-day moving average at approximately $US67.08.”
AFR