Merrill Lynch

reiterated its optimistic assessment of the oil and natural gas industry Monday following a strong quarter in which many companies reported better-than-expected earnings because of soaring prices.

Analyst Steven Pfeifer said during a conference call that he would continue to recommend the purchase of shares in the major oil companies after raising the earnings estimates for all of the eight major oil companies that have so far reported first-quarter results. Earnings for the eight major oil companies that have reported have come in about 9% above the consensus forecast after crude oil surged during the quarter to the highest level in a decade.

Pfeifer said a recovery in refining and marketing margins as seen toward the end of the first quarter would help to propel future earnings even as crude oil prices start to come down. Merrill Lynch's earnings estimates are above consensus for 8 out of 10 major oil companies in 2000 and 9 of 10 companies in 2001.

"While upward earnings revisions over the past year have been driven by the rapid recovery in oil prices, we believe that future earnings revisions will be driven by strong natural gas prices and recovering refining and marketing margins," Pfeifer said.

ExxonMobil

(XOM) - Get Report

,

Total Fina Elf

(TOT) - Get Report

and

Texaco

(TX) - Get Report

are among Merrill Lynch's top picks, partly because of expectations that their exploration activities in West Africa will result in strong growth.

Amerada Hess

(AHC) - Get Report

was highlighted by Merrill Lynch as a promising stock because of the company's restructuring efforts.

Merrill Lynch has not done any underwriting for these companies.

Merrill analysts were also bullish about natural gas and oil service and drilling companies. They said high prices would help to drive up earnings in the natural gas sector while increased spending would help to fuel growth for the oil service and drilling companies.