Noting that, on average, the oil and natural gas price forecasts of Raymond James Energy Research have been more materially accurate than Wall Street estimates or 12-month futures strips from 2001 through 2004, Raymond James analysts said in a research note that they are again more optimistic than consensus, putting 2005 oil at $44/bbl and full-year gas at $7.25/Mcf.
J. Marshall Adkins, Wayne Andrews and Pavel Molchanov wrote in the latest "Stat of the Week" that they believe that OPEC this year will set a floor price for oil "in the low $40[s] range, with substantial upside to this forecast if supply disruptions emerge. On the U.S. natural gas side, we look for prices to move toward the 6-to-1 ratio with oil prices. Consensus, on the other hand, calls for $39 oil and sub-$6 gas."
However, the consensus forecast "is simply too low," said the analysts. "Given the very strong energy fundamentals, we would expect to see consensus gradually move toward our forecast in the coming months. This, of course, would lead to much higher than consensus earnings estimates for energy companies and serve as a bullish catalyst for stocks in our E&P and oil service groups."
The Raymond James trio noted that "time and time again," they encounter institutional investors who are convinced that investing based upon nonconsensus oil and gas prices forecasts "is a loser's game." However, while they agree that getting forecasts "exactly right" is difficult, "we think that investors can make money by investing based upon directional moves in energy prices relative to consensus."
Their review of the oil and gas price data points to higher prices in 2005. Current fundamentals, they said, "are different now than they were through the 1990s. On the oil side, the almost total lack of excess production capacity in OPEC means that the market is very tight. On the gas side, the domestic supply glut that prevailed during the early to mid 1990s no longer exists."
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