Investing.com -- The sharp decline in oil prices following a U.S.-Iran peace agreement has created a buying opportunity in energy stocks, Morgan Stanley argues, with producer valuations now pricing in crude well below current market levels.

Analyst Devin McDermott said the pullback "creates an opportunity to add exposure to Majors and high-quality E&Ps," noting that oil producers intrinsically reflect an average WTI price of approximately $66 per barrel, roughly 13% below the 12-month strip of around $75 per barrel.

WTI has fallen 29% since the U.S. and Iran first announced a ceasefire in early April, a decline of approximately $30 per barrel.

The move accelerated after President Trump announced over the weekend that both nations had reached a memorandum of understanding, with a formal signing ceremony scheduled for Friday in Switzerland.

Despite the diplomatic breakthrough, Morgan Stanley cautioned that restoring Iranian supply will not be immediate.

Morgan Stanley oil strategist Martijn Rats estimates tanker flows will take several weeks to normalize, with Iranian production returning to roughly 50% capacity by September and 80% by December.

On those assumptions, the bank sees a supply deficit of approximately 3.4 million barrels per day in the third quarter, keeping the market tight through summer.

Rats expects Brent to be supported around $90 per barrel in Q3 and at or above $80 per barrel into next year.

At strip pricing of around $72 WTI, Morgan Stanley estimates a median 2027 free cash flow yield of 13% for U.S. oil exploration and production companies, a level that McDermott and Morgan Stanley consider a compelling entry point for investors.