Nothing like consensus on Wall Street, both opinions apparently issued today:
--Analyst Actions: Citigroup Upgrades Newfield Exploration Company to Buy from Neutral
--Analyst Actions: Bank of America Downgrades Newfield Exploration Company to Neutral from Buy
Newfield Upgrade and Downgrade
Re: Newfield Upgrade and Downgrade
The difference is probably just caused by the firm's official commodity price deck being different.
Raymond James Energy Stat dated January 3, 2017:
Summary
One year ago, we thought that 2016 oil prices would rally in the back half of the year, natural gas prices would be stagnant, and energy stocks in general would meaningfully outperform the broader market. Check. Oops. Check. After bottoming in February 2016, oil prices doubled from trough levels by the end of the year, though they didn't quite reach the $60+ exit range we had in mind a year ago, and the full-year average of $43 WTI was modestly below our annual forecast of $50. Natural gas initially played along with our lackluster outlook but had a solid back-end-loaded recovery, topping our $2.00 full-year forecast by 20%. More importantly, energy stocks in 2016 generally outperformed with oil prices, as we expected them to do.
Cyclical high for oil at $70 in 2017, followed by mid-cycle pricing in the $60s. As far back as 2012, our oil model has suggested the mid-$60s as the ''right'' oil price to balance the market. We still believe that is close to the right number. With WTI's 2017 futures strip in the mid-$50s, oil prices are still too low, even after their double off the bottom. Given the price point starting the year, we are lowering our 2017 WTI forecast from $80 to $70, but this still represents the peak of the upcycle. And given the industry's persistent success at reducing costs, we are lowering our long-term deck from $70 to $60.
U.S. gas market looks healthy in 2017, even better in 2018. Our current 2017 Henry Hub forecast of $3.25, marking a three-year high, looks reasonable. On both the supply and demand sides, positive trends have emerged. We are initiating a 2018 forecast of $3.50, a second up year. We have a hard time envisioning such gas prices being sustained, but our reduced oil price forecast (and resulting impact on supply of associated gas) leads us to raise our long-term gas price deck from $2.50 to $3.00.
After a stellar 2016, more gains on deck for energy stocks. After underperforming the S&P for five years, energy finally got out of its rut in 2016, turning in the best performance of any sector. While similar percentage gains in 2017 may be too ambitious, we think this will be a strong year for energy stocks (especially early in the year). In E&P and services, focus on U.S. land rather than offshore and international-levered companies.
Raymond James Energy Stat dated January 3, 2017:
Summary
One year ago, we thought that 2016 oil prices would rally in the back half of the year, natural gas prices would be stagnant, and energy stocks in general would meaningfully outperform the broader market. Check. Oops. Check. After bottoming in February 2016, oil prices doubled from trough levels by the end of the year, though they didn't quite reach the $60+ exit range we had in mind a year ago, and the full-year average of $43 WTI was modestly below our annual forecast of $50. Natural gas initially played along with our lackluster outlook but had a solid back-end-loaded recovery, topping our $2.00 full-year forecast by 20%. More importantly, energy stocks in 2016 generally outperformed with oil prices, as we expected them to do.
Cyclical high for oil at $70 in 2017, followed by mid-cycle pricing in the $60s. As far back as 2012, our oil model has suggested the mid-$60s as the ''right'' oil price to balance the market. We still believe that is close to the right number. With WTI's 2017 futures strip in the mid-$50s, oil prices are still too low, even after their double off the bottom. Given the price point starting the year, we are lowering our 2017 WTI forecast from $80 to $70, but this still represents the peak of the upcycle. And given the industry's persistent success at reducing costs, we are lowering our long-term deck from $70 to $60.
U.S. gas market looks healthy in 2017, even better in 2018. Our current 2017 Henry Hub forecast of $3.25, marking a three-year high, looks reasonable. On both the supply and demand sides, positive trends have emerged. We are initiating a 2018 forecast of $3.50, a second up year. We have a hard time envisioning such gas prices being sustained, but our reduced oil price forecast (and resulting impact on supply of associated gas) leads us to raise our long-term gas price deck from $2.50 to $3.00.
After a stellar 2016, more gains on deck for energy stocks. After underperforming the S&P for five years, energy finally got out of its rut in 2016, turning in the best performance of any sector. While similar percentage gains in 2017 may be too ambitious, we think this will be a strong year for energy stocks (especially early in the year). In E&P and services, focus on U.S. land rather than offshore and international-levered companies.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Newfield Upgrade and Downgrade
More from Raymond James report ...
Why are we convinced that 2016 marked the bottom for oil? Simply put, it has become clear that the global oil industry cannot
grow aggregate oil supply on a sustainable basis at sub-$50/Bbl oil. The clearest evidence for this is the fact that non-OPEC supply in
2016 posted its steepest annual decline this decade, down 1.3 million bpd (more than 2%) when we compare exit-2016 versus exit-
2015. This included exceptionally steep declines in the U.S., China, Mexico, and Colombia, partly offset by growth in Russia, Brazil
and a few other places. Further, global demand rose at an above-trend pace for the second straight year (up 1.6 million bpd), as
cheap fuel stimulated record auto sales, rising miles traveled, and strong growth in gasoline consumption. Despite an unrepeatable
2015/16 surge in OPEC supply, the oil supply/demand equation became undersupplied (inventories fell) in the second half of 2016.
How do we see global oil supply/demand evolving in 2017? Our oil model shows that global oil inventories have been drawing since
2Q16. The draws are set to increase in 2017, averaging 900,000 bpd for the full year. Inclusive of the partial implementation we are
assuming for the OPEC cut, we project draws of 1.1 million bpd in 1Q and a similar 1.0 million bpd in 2Q. Even if we assume OPEC
supply recovers to near maximum capacity in 2H17, our model still shows a draw of 500,000 bpd in 3Q and 0.9 million bpd in 4Q.
How is it that inventories still draw so much even after the OPEC cut expires? First, we forecast global demand growth of 1.2 million
bpd in 2017 (this is well below the levels of 2015, 2016, and IEA forecasts). Second, non-OPEC, ex-U.S. supply looks like it will flatline
in 2017/18 as the best-case scenario. In other words, our bias would be for non-OPEC supply outside of the U.S. to decline a bit.
Third, U.S. production should post a modest ~350,000 bpd recovery in 2017, rising to a robust 1.2 million bpd surge in 2018.
My Take: I have seen numerous articles expressing a fear that U.S. oil production will SURGE when oil goes to $60/Bbl. I just don't see that happening, primarily because nothing happens fast in the oil patch. Supply does not respond quickly to a change in the oil price, one way or the other. That is because drilling programs are set for 2017 and they will not change much regardless of what the price does. If oil spikes to $70/Bbl in Q4, then I think we will see a much larger increase in U.S. oil production in 2018. - Dan
Why are we convinced that 2016 marked the bottom for oil? Simply put, it has become clear that the global oil industry cannot
grow aggregate oil supply on a sustainable basis at sub-$50/Bbl oil. The clearest evidence for this is the fact that non-OPEC supply in
2016 posted its steepest annual decline this decade, down 1.3 million bpd (more than 2%) when we compare exit-2016 versus exit-
2015. This included exceptionally steep declines in the U.S., China, Mexico, and Colombia, partly offset by growth in Russia, Brazil
and a few other places. Further, global demand rose at an above-trend pace for the second straight year (up 1.6 million bpd), as
cheap fuel stimulated record auto sales, rising miles traveled, and strong growth in gasoline consumption. Despite an unrepeatable
2015/16 surge in OPEC supply, the oil supply/demand equation became undersupplied (inventories fell) in the second half of 2016.
How do we see global oil supply/demand evolving in 2017? Our oil model shows that global oil inventories have been drawing since
2Q16. The draws are set to increase in 2017, averaging 900,000 bpd for the full year. Inclusive of the partial implementation we are
assuming for the OPEC cut, we project draws of 1.1 million bpd in 1Q and a similar 1.0 million bpd in 2Q. Even if we assume OPEC
supply recovers to near maximum capacity in 2H17, our model still shows a draw of 500,000 bpd in 3Q and 0.9 million bpd in 4Q.
How is it that inventories still draw so much even after the OPEC cut expires? First, we forecast global demand growth of 1.2 million
bpd in 2017 (this is well below the levels of 2015, 2016, and IEA forecasts). Second, non-OPEC, ex-U.S. supply looks like it will flatline
in 2017/18 as the best-case scenario. In other words, our bias would be for non-OPEC supply outside of the U.S. to decline a bit.
Third, U.S. production should post a modest ~350,000 bpd recovery in 2017, rising to a robust 1.2 million bpd surge in 2018.
My Take: I have seen numerous articles expressing a fear that U.S. oil production will SURGE when oil goes to $60/Bbl. I just don't see that happening, primarily because nothing happens fast in the oil patch. Supply does not respond quickly to a change in the oil price, one way or the other. That is because drilling programs are set for 2017 and they will not change much regardless of what the price does. If oil spikes to $70/Bbl in Q4, then I think we will see a much larger increase in U.S. oil production in 2018. - Dan
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group