Citi: Oil Could Fall 60% From Here
Now that winter has drawn to a close, analysts at Citi Research released a new report updating their outlook for the oil and gas exploration and production (E&P) sector.
Despite a brutal near-term forecast for oil and gas prices, analysts list several E&P names that they believe are well-positioned to capitalize on the eventual rebound in oil and gas prices.
Worst Yet To Come For Oil And Gas?
According to the report, this winter was about 6 percent colder than the ten-year average, and yet the cold winter failed to provide a boost to slumping natural gas prices. Now that cold-weather demand is no longer in play, analysts are lowering their projected natural gas prices based on increasing domestic production and falling coal prices.
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Citi now projects an average 2015 gas price of $2.80/MMBtu, a 2016 price of $3.00/MMBtu and a multi-year long-term price of $3.75/MMBtu for 2018 and beyond.
Greater Than 60 Percent Downside?
Despite the fact that WTI crude oil prices have remained in the upper-$40 and lower-$50 price range throughout 2015, Citi analysts still believe that WTI prices will fall “well below $40/Bbl” and see downside risk as low as $20/Bbl in the short term.
A price of $20/Bbl would represent a more than 60 percent drop from current levels.
The United States Oil Fund ETF (NYSEMKT: USO) is already down more than 51 percent over the past year.
Stock Outlook
Analysts see near-term downside risk of 15-20 percent for the E&P group.
However, they fully expect investors will be looking to buy the group at the bottom and see as much as 10 percent upside if crude oil prices stabilize over the next year.
Citi names the following E&P stocks with the most upside potential:
Devon Energy Corp (NYSE: DVN)
Newfield Exploration Co (NYSE: NFX)
Canadian Natural Resources Ltd (NYSE: CNQ)
Anadarko Petroleum Corp (NYSE: APC)
Occidental Petroleum Corp (NYSE: OXY)
Antero Resources Corp (NYSE: AR)
Range Resources Corp (NYSE: RRC)
Latest Ratings for DVN
Mar 2015 | Credit Suisse | Maintains | Outperform | |
Feb 2015 | Jefferies | Maintains | Buy | |
Feb 2015 | Deutsche Bank | Maintains | Buy |
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