The top oil analyst on the street is Doug Terreson from Morgan Stanley. Doug has an excellent track record and is a great guy. Here are some of his latest comments:
THE GOLDEN AGE OF REFINING:
Maintain Overweight On Integrated Oils, R&M: Integrated Oils appear 15% undervalued on normalized returns on capital. Independent R&M represents the best value per unit of return in Energy, and remains the largest sector bet in the Global Model Energy Portfolio.
The Golden Age of Refining To Surprise in 2006-07The Wall Street consensus was surprised by R&M in 2004-2005, although we maintain our original position: that 2006 will be the best year of the past 2 decades in R&M. Our outlook for 2007-2008 is similarly positive.
Raising Projections For 2006, 2007, & Mid-Cycle: Our updated assessment suggests that growth in demand (3.0 MMBPD) will easily surpass that of capacity during 2006-2007 (1.6 MMBPD). Our projection for US margins rises from $10.50/bbl to $11.00/bbl in 2006, and from $9.00/bbl to $11.00/bbl in 2007. Consensus appears near $9.00/bbl in 2006. Our mid-cycle projection rises from $5.70/bbl to $6.20/bbl.
Investment Catalysts Ahead in R&M: 1) Earnings projections for 2006-2007 need to rise, in some cases by 25-30%, 2) Normalized earnings estimates and price targets likely to rise significantly, 3) Higher normalized returns render higher valuation in the equity market.
Raising Price Objectives in R&M: Price target on Valero rises from $70/sh. to $75/sh. with Sunoco higher from $90/sh. to $95/sh. Positive revisions ahead for Integrated Oils.
GLOBAL ENERGY: MODEL PORTFOLIO UPDATE - 10 Jan 2006
Morgan Stanley Global Energy Portfolio Contains our Top 10 Global Ideas. Morgan Stanleys Global Energy Portfolio represents our best ideas from around the world, with our chosen equities consistent with sector ratings. Portfolio includes: Integrated Oils: COP, XOM, WMB, PBR; Oil Service: SLB, CAM;
E&P: TLM; and R&M: SUN, MOL, REP.
Portfolio Remains Overweight Oilfield Service & Refining & Marketing. Consistent with Morgan Stanley sector calls across the globe our portfolio is Overweight the Oil Service and R&M groups. While Underweight Integrated Oils, we are positive on the sector, with Attractive ratings around the world.
R&M: Outlook Remains Positive for 2006. Our 3 investment themes include: 1) Earnings projections must rise in 2006; 2) Mid-cycle earning and price objectives must also rise; 3) Higher normalized returns equals higher valuation in the equity market.
Oil Services: Positive View Remains in Place. Our position is premised upon the level of pent-up drilling demand in international markets, which will support volume and pricing gains in coming months.
