Today, UBS upgraded Chevron (CVX) from Neutral to BUY and raised their target from $100 to $115. Why? They upped this year’s estimate for a barrel of crude oil to $115 (32% increase) and next year’s to $120 (54% increase). While that may not be the $200 a barrel oil Goldman predicts, it’s still higher than UBS previously expected.
But here’s the problem with UBS’s logic. Oil is already $125. So it’s hard to see how Chevron goes higher if UBS is right that oil is going to drop to $115. UBS also bases the Chevron upgrade on improved production, but, again, it’s hard to see how Chevron goes up if oil falls.
(We suspect UBS is trying to have its cake and eat it, too.)
On a broader note, the consensus everywhere but UBS now seems to be that oil prices are going to keep charging higher. So, now what does that mean? It means we’re probably poised for a pullback.
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