Energy stocks hit 5-month peak as oil upside risks remain

ENERGY STOCKS HIT 5-MONTH PEAK AS OIL UPSIDE RISKS REMAIN

An index of Europe's oil and gas companies is trading at its highest level since mid-October on Tuesday, as crude prices trade at a five-month high, and some analysts see more upside for oil as the demand outlook improves and geopolitical tensions linger.

The STOXX Europe 600 oil & gas index (.SXEP) is up 2.6%, at its highest since Oct. 19, while Brent crude futures BRN1! touched $88.82/barrel on Tuesday, the highest since Oct. 30.

"One key question for the global demand outlook is whether demand in Europe—the third largest consumer after the US and China—is stabilizing or even recovering as the European economy exits stagnation," Goldman Sachs says in a note.

The firm's model for measuring OECD Europe oil demand signalled February demand was up 100,000 barrels per day, implying upside risk to their demand growth forecasts for February and the 2024 average.

Firmness in European demand, along with slower European supply growth and a possible extension of OPEC+ cuts through the end of the year, has Goldman saying that risks to their average Brent price forecast for 2024 of $83/barrel are "skewed moderately to the upside".

Those factors should outweigh downside risks from persistent softness in Chinese demand, Goldman says.

Escalating tensions in the oil-rich Middle East are also supporting oil prices, analysts say.

"An Israeli airstrike on Iran's embassy in Syria ... has reignited geopolitical tensions, and squeezed the oil price higher in return," says Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

Companies in Europe benefitting from higher oil prices on Tuesday include Equinor EQNR, Eni ENI, Shell SHEL and BP BP., the latter two the biggest drivers of a 0.4% gain in Britain's FTSE 100 UK100.

(Samuel Indyk)

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