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The oil industry is a pretty interesting sector now as it has lagged year to date, it’s under-owned, and has much better value historically, Andrew Sheets, chief cross asset strategist at Morgan Stanley, told CNBC on Friday, joining the growing chorus of other analysts who have recently turned bullish on European and U.S. oil stocks.
The oil sector has lagged the move in oil prices which have been creeping higher and now sit higher than a year ago, Sheets said.
The industry is also interesting because now it is in a very different part of the cycle compared to the very aggressive capital spending when oil prices were $100 per barrel. Now spending is being rolled back and efficiencies have been found, according to Morgan Stanley’s strategist.
Morgan Stanley upgraded the oil sector in Europe to “overweight” a couple of weeks ago, and the bank is also “overweight” on the sector in the U.S., Sheets noted.
“We do think it’s a very interesting sector that is both under-owned and historically much better valued than a lot of other sectors,” the strategist told CNBC.
There is a kind of difficult window for oil prices in the first quarter next year, when new projects and supply is due to come to the market, but demand growth this year has been “incredibly strong.” Morgan Stanley’s current assumption is that the strength in global demand will be enough to offset some of the supply coming online and ultimately, lend some kind of support to oil prices, Sheets said.
Morgan Stanley is joining Goldman Sachs in its view on oil stocks. Earlier this month, Goldman said that shares in oil companies had underperformed the recent oil price rally, so some of those stocks were set to rise in a long-term oil price of $50-55. Goldman Sachs has also recently turned bullish on European majors and on Big Oil’s competitive positioning.
As early as in August, analysts were saying that the oil sector globally is an attractive play for investors right now, with “great value in supermajor oil companies.”
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.