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Pro: buy ‘oil services stocks’ to play the energy trade from here on out

on Nov 19, 2022
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  • Paul Sankey expects oil prices to return to $120 a barrel.
  • He defended his bull case for oil services stocks on CNBC.
  • Energy Select Sector SPDR Fund is already up 60% YTD.

Oil is now back to the sub $90 level but that does not signal an end to the “energy trade”. In fact, it’s an opportunity to load up on oil stocks as far as Paul Sankey is concerned.

Why is he bullish on energy stocks?

Sankey is convinced that oil prices will return to around $120 a barrel over the next six months.

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Near-term catalysts that feed into his bullish view include the OPEC meeting on December 4th. On top of that, the European Union is set to ban Russian oil a day after as well. On CNBC’s “Closing Bell”, the Lead Analyst at Sankey Research noted:

We love the setup. We’re so bullish. We’ve got a target for $120 brent by driving season next year. That’ll be May of 2023. With a weak oil price in late November, it’s a massive buy here. We think it’ll rip higher.

Seasonal demand was among other reasons cited for the constructive view.

Sankey recommends owning oil services stocks

According to Paul Sankey, a key member of the Organisation of Petroleum Exporting Countries – Saudi Arabia also wants oil to trade above $100.

In particular, he recommends oil services stocks like Schlumberger NV (NYSE: SLB) and Halliburton Company (NYSE: HAL) to play that impending strength.

Now we love oil services. We’re buying oil leverage here because our belief is that market will recognise that we have oil supply problem; next phase is market realization that we’re short oil and we need oil. To us, that’s an oil services trade.

Another meaningful catalyst, he added, is “China” that’ll unlock significant demand once it’s come back online after the still ongoing COVID restrictions.