The rally isn’t over for high-flying North American oil and gas stocks, according to two analysts raising their price targets on companies including Chevron (CVX), Suncor Energy (SU.TO)(SU), and Cenovus Energy (CVE.TO)(CVE).
In a trio of research notes on Thursday, Credit Suisse analyst Manav Gupta pointed to an advantage for companies that do their refining in North America in light of the recent European Union ban on most Russian oil imports set to take effect by year’s end. He predicts refineries in Europe will “opt for run cuts” as they struggle to replace Russian barrels amid already tight supply conditions. At the same time, he says European refiners are disadvantaged by high natural gas costs.
“North American refiners have already moved away from Russian crudes and have ~$8-$10/bbl operating cost advantage over their European peers due to relatively cheaper natural gas,” Gupta wrote on Thursday.
He raised his price target on shares of Suncor (from $58 to $63), Chevron ($190 to $202), and Cenovus ($32 to $37). Suncor and Cenovus have all of their refining capacity in North America. Chevron has nearly 70 per cent of its refining capacity in the United States, with the remainder in Asia. All three stocks are trading near their 52-week highs.
CIBC analyst Dennis Fong struck a similarly bullish tone in a report published on Wednesday. He highlighted strong performance throughout the sector in the first quarter driven by the ongoing war in Ukraine.
“As themes like energy security and concerns around cost inflation for consumers become more prominent, we believe investor interest could continue to build for energy equities,” Fong wrote. “The sentiment is starting to turn the corner. We would highlight our conversations with investors still show some degree of skepticism on the longevity of stronger crude oil pricing, but that apprehension is fading.”
Fong raised his price target on shares of Suncor ($60 to $65), Cenovus ($30 to $34), Imperial Oil (IMO.TO) (IMO) ($70 to $74), Canadian Natural Resources (CNQ.TO)(CNQ) ($90 to $95), and MEG Energy (MEG.TO) ($23 to $26).
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.