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Energy Stocks Poised for Gains as Oil, Gas Outlook Improves, UBS Says

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UBS maintained its bullish outlook for oil and natural gas, saying it expects 2027 prices to top what the current futures price would suggest even as volatility prompted it to stress-test energy stocks under multiple price scenarios, the bank said in a note on Tuesday.

The analysis looked at oil prices ranging from $55-$65 per barrel for Brent crude and corresponding WTI prices of about $51-$61/bbl, along with natural gas prices between $2.75 and $4.25 per million British thermal units.

UBS assumed companies would keep spending and production levels unchanged across all scenarios.

UBS said current share prices for US oil and gas producers imply investors are expecting WTI crude prices in the low $60s/bbl and natural gas prices of about $3.50/MMBtu in 2027.

In a scenario where Brent crude averages $75/bbl and natural gas averages $3.75/MMBtu, UBS believes the sector appears undervalued. Based on historical valuation levels, the bank estimates energy stocks could have over 20% upside.

The bank also said energy company valuations are highly sensitive to changes in commodity prices. A $10/bbl move in oil prices and a $0.50 change in natural gas prices would have a significant impact on companies' cash flow and valuations.

UBS added that if oil prices fall below $60/bbl and natural gas prices below $3/MMBtu many producers would likely reduce drilling activity and production.

Despite higher oil prices since the recent conflict began, energy stocks have lagged the broader market. The S&P 500 Energy Index has gained 8% but has underperformed the broader S&P 500 by about 3 percentage points.

Front-month WTI crude prices have risen 22%, while contracts for 2027 delivery are up 15%. Longer-dated natural gas prices, however, have fallen 10%.

Among the companies UBS follows, SM Energy (SM) and Chord Energy (CHRD) have posted the strongest gains since the conflict began, while Liberty Energy (LBRT), Comstock Resources (CRK) and Gulfport Energy (GPOR) have been the weakest performers.

Smaller and mid-sized oil producers have generally outperformed their larger peers, UBS said.

UBS maintained its preferred exploration and production stocks as Ovintiv (OVV), Devon Energy (DVN) and Antero Resources (AR), while naming National Energy Services Reunited (NESR) as its top pick among oilfield services companies.

Price: $29.40, Change: $-0.90, Percent Change: -2.97%

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