Despite the increased volatility for oil and natural gas prices, the shift of wealth from other parts of the U.S. economy into the energy sector will continue to drive stock prices higher — especially in the next year — according to Raymond James’ latest “Stat of the Week.”

Analysts J. Marshall Adkins and James M. Rollyson suggested last week that investors ignore the short-term cycles and “place your bets on the improving energy fundamentals to come over the next one-to-three years.”

Oilfield service stocks have been “extremely” volatile, and “some analysts have begun to call for the end of the oilfield cycle.” The logic behind this thinking, said analysts, is that the slowing growth rate in the U.S. rig count is a leading indicator of the end to the typical three-year oilfield service “mini-cycle.”

The bearish call “sounds fairly logical” because “we are now two and a half years into this most recent up cycle and that, given the accelerating rig count, we are on the brink of another major correction.” However, Adkins and Rollyson do not believe the oil service stocks are at or near a peak because of three key points:

The only solution to falling gas supply is to reduce demand through higher prices. “Going forward, we do not think U.S. gas production will increase, despite the higher rig counts. Moreover, we think it will be increasingly difficult to squeeze out incremental demand through higher prices (especially with the robust economy we have today).” Fundamentals today, they said, are more comparable to the 1970s.

“It is our belief that we are in the midst of a longer-term secular upswing, where oil and gas prices are going to be driven meaningfully higher by limited supplies and increasing global demand. While the last 20 years of history is useful, it occurred during a period when we had a meaningful gas supply bubble, not a gas supply decline.”

Since oil appears to now be setting the floor price for gas, “it is important to remember such a tiny change in the global oil supply/demand situation will likely have meaningful corresponding upward consequences on U.S. gas prices.”

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