William Blair backs oil producers, cautious on gas near term

Investing.com -- William Blair analysts said in a note Monday that the energy sector may be nearing its cyclical bottom, with oil producers better positioned than gas companies in the short term.

“We believe the energy sector is approaching its latest cyclical bottom, despite a potential surplus in oil and, to some extent, natural gas supply, as investors begin to look past the commodity noise,” the firm wrote.

The analysts expressed relative optimism on oil, noting that “U.S. inventory deterioration causes domestic production to decline, offsetting some of the upcoming incremental OPEC+ barrels.”

By contrast, William Blair said it was “slightly cautious on natural gas and some related stocks nearer term given the potential for increased domestic supply.”

Even so, the analysts highlighted longer-term demand drivers for gas, pointing to “incremental demand from LNG projects and data centers.” They said their view diverges from consensus, noting: “Our expectations contrast with those of most investors and with the analysts’ consensus call, which is extremely cautious on oil and related stocks in both the near and long term.”

The firm said it was launching coverage of 11 exploration and production companies, with “Outperform ratings over a 12-month period on 10 of 11 companies.”

William Blair cited four key factors supporting the sector’s future upside: “First, end-use fossil fuel demand remains strong, with AI and data centers, among others, being prominent sources. Second, most energy companies are in a better financial position than ever. Third, operational efficiencies continue to notably increase. Fourth, capital allocation that includes notable shareholder return has become more strategic.”

Its proprietary data indicated that “quality U.S. oil inventory is declining at a quicker pace than expected, while gas inventory appears to be holding up much better.”

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