PashaIgnatov/iStock via Getty Images
According to Neil Mehta, managing director at Goldman Sachs, optimism abounds in the Canadian oil sector.
Top Oil Stock Picks
In a recent CNBC interview, Mehta highlighted Canadian Natural Resources (CNQ), ConocoPhillips (COP), Devon Energy Corp. (DVN), Magnolia Oil & Gas (MGY), and Kosmos Energy Ltd. (KOS) as the top five exploration and production companies to watch.
Mehta expressed his bullish sentiment, stating, “When we do our long-term oil demand modeling, we don’t see a peak happening this decade. We think that peak happens at some point next decade. We think the market needs to better appreciate companies with depth of inventory, and Canadian oils have that.”
He further added that these companies are poised to generate significant free cash flow, projecting a 11% free cash flow yield by 2025.
The current Brent oil (CO1:COM) price stands at $87.43, reflecting a 13.48% increase year-to-date and a 3.54% rise from a year ago.
Market Dynamics
Mehta attributed the strength in Brent prices to three key factors:
Firstly, U.S. oil production has slightly diminished, dropping from 13.3 million barrels a day at the end of the previous year to 13.1 million barrels a day currently.
Secondly, Russian oil production has seen a decline due to disruptions in Ukraine following sanctions, affecting refining and production levels.
Lastly, demand, which was anticipated to grow by about 1 million barrels a day, has exceeded expectations, now nearing 1.5 million barrels a day.
“We see an opportunity for the oil price to continue its upward trajectory,” Mehta concluded. “The market’s realization of sustained demand for this commodity is surpassing previous consensus estimates.”
