Goldman Sachs: BUY THE DIP (In Oil Stocks)

Alliance Oil

Photo: Alliance Oil

Goldman Sachs has recommended buying the dip in oil equities ahead of the IEA’s release of Strategic Petroleum Release-held (SPR) oil into the market. 28 IEA members have agreed to release 60 million barrels of oil in July to compensate for disruption in oil supplies stemming from civil unrest in Libya. The conflict in Libya had removed 132 million barrels of light, sweet crude oil from the market at the end of May.

The SPR release will weigh on oil prices in the near term but the release is consistent with the bullish outlook on fundamentals. In a new report, Goldman Sachs explains why:

  • OPEC spare capacity is limited, backed by the IEA’s announcement that the SPR release is necessary to meet summer oil demand.
  • 3.5% global GDP growth guarantees that oil demand will exceed available supply growth.
  • The SPR releases increases the likelihood of a soft landing for global oil demand growth.
  • The Energy Select Sector SPDR Fund (XLE) historically hasn’t outperformed or underperformed the S&P500 at the time of an SPR release, but in the six months after the announcement, it has on average risen by 3% and outperformed the S&P500 by 5%.
  • Buy-rated favourites are Cenovus Energy, ExxonMobil, Marathon Oil, Occidental Petroleum, OGX, and Suncor Energy among refiners.

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