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Large-cap energy stocks are now so out of touch with oil market fundamentals that they could be down sharply in the near future, according to analysts at JPMorgan.
There is “growing potential for a sharp contraction and upside, given its extreme disconnect from oil fundamentals,” JPMorgan strategists, led by Dubravko Lakos-Bujas, said on Tuesday in a note published by MarketWatch.
Energy, along with retail, travel and recreation, banking and semiconductors, are the sectors JPMorgan sees as “strong buys at current levels”. Recent declines in these sectors have created many “attractive opportunities,” the investment bank said on Tuesday, after the stock and oil markets collapsed on Monday in a wide sell-off over fears that the Delta variant could slow down the market. economic growth and demand for oil face further restrictions in some countries.
Oil prices plunged more than 7% on Monday, the worst one-day loss so far this year and the worst one-day drop since September 2020.
Despite Monday’s market crash, JPMorgan remains bullish on equities.
“We remain constructive on equities and see the latest wave of growth and slowdown in premature and exaggerated fears,” the bank’s team as quoted by MarketWatch said.
According to JPMorgan, the economic recovery is in an early cycle, moving slowly towards the middle of the cycle, despite the fact that “leadership in stocks and bonds is trading as if the global economy is entering the end of the cycle.”
JPMorgan also predicts that oil prices are expected to climb to $ 80 a barrel by the end of this year due to rising demand and limited supply, Barron reports, citing a note from the bank’s analysts.
The recovery in demand after the pandemic combines with “the unintended consequences of ESG policies” that reduce fossil fuel production capacity faster than global energy demand could turn to renewables to replace it, according to the JPMorgan note cited by Barron’s.
Goldman Sachs is also sticking to its $ 80 oil forecast for the end of the year, and even said the OPEC + deal adds a $ 2 a barrel hike to that outlook.
By Tsvetana Paraskova for OilUSD
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