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Goldman Sachs’ Currie says oil stocks are trading ‘far below’ their long-term trend

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Shares of energy companies could surprise markets and continue to rise, according to Goldman Sachs’ head of commodities research, despite a recent fall in crude prices. Jeff Currie told CNBC that historically, stocks in the sector have traded at a higher premium to crude oil prices compared to current price levels . For instance, the price gap between SPDR Oil & Gas ETF — which includes major oil and gas exploration and production companies — and ICE Brent Crude futures contract was about $66.60 on Tuesday. That’s significantly lower than the $104 gap recorded at the start of January 2017, according to Koyfin data, as the chart below shows. “There is a catch-up game going on between oil prices and … equities,” Currie said Tuesday. “Yes, the equities have regained some of the distance, but go back to 2017 and look at the gap between equities and the oil price. There is a big gap that needs to be filled there. Meaning, that … equities are still far below the oil price, looking at it on a multi-year horizon.” Spot oil prices and energy stocks tend to move in tandem. However, crude prices have fallen in recent months, as a slowdown in China’s economy hit demand. International benchmark Brent crude futures, which stood at $100 a barrel in late August, traded at $85.46 a barrel on Tuesday afternoon. Whereas oil and gas majors’ share prices have remained resilient over the period; the SPDR Oil & Gas ETF is up by about 4% since the end of the summer. Speaking on the sidelines of Goldman Sachs’ Carbonomics conference in London , Currie pointed to a number of reasons for the dislocation in prices. These include Russia’s attempts to sell as much oil as possible before European Union sanctions come into effect on Dec. 5, driving down Brent crude prices on the spot market. “We know that’s going to pass and that really doesn’t change the longer-term balance,” Currie added. He also noted that equity investors were looking past this, pricing in a rebound in oil demand when Covid-19 restrictions are relaxed in China, potentially by the second quarter of next year. Currie said that Goldman Sachs’ medium-term oil outlook for 2023 was “very positive,” and the bank plans to “stick to our guns” with a $110-a-barrel forecast for next year. He also said he saw a “high probability” of a cut in production by OPEC nations when they meet in December. OPEC+ has recently hinted it could impose deeper output cuts to spur a recovery in crude prices . This signal came despite a report from The Wall Street Journal suggesting an output increase of 500,000 barrels per day was under discussion for Dec. 4. — CNBC’s Sam Meredith contributed to this report.

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