Goldman Sachs says that $35 a barrel for West Texas Intermediate crude oil is an "idealistic Goldilocks scenario," one where the price is "not too high and not too low but just right -- above cash costs but keeping a too-early shale restart at bay," according to an April 6 research note to clients.
A $35/bbl price is also one which makes several oil and gas exploration and production stocks attractive, Goldman Sachs analysts wrote in the joint note.
"While we view recent supply data from both the U.S. and OPEC as somewhere between in line and modestly bearish for prices, modestly bearish near term is not enough to change our attractive coverage view for E&P equities," the note said. "We would use volatility to add to positions of shale productivity winners and the next rung down."
Despite near-term volatility, oil prices between $30 and $35 should keep the "behavior" of U.S. oil producers unchanged and accommodate a $55-$60 per barrel price range for 2017 -- providing opportunity for equity buying, Goldman says. Even if oil prices rally to $45-$50 a barrel, which would reduce the 2017 upside for prices, it is still favorable for equities.
Goldman does not expect producers to change their capital expenditure budgets unless oil prices rise above $50 a barrel, while inventory falls. (The analysts acknowledge that some Permian basin exploration and production companies could begin add activity if oil rises above $45 a barrel.)
Crude oil was racing toward $40 a barrel on Friday as commodity traders pinned hopes on next week's meeting among Organization of Petroleum Exporting Countries members which will hopefully result in a production freeze. As well, the number of active oil rigs in the U.S. fell by 8 to 354, according to Baker Hughes data. West Texas Intermediate was up 5.6% to $39.35 a barrel, at a recent check.
The analysts wrote in the April 6 note that they are "less willing to believe in a sustained OPEC production freeze or cut, so we do not regard the data as a departure from our outlook at present."
Here are the nine stocks Goldman is recommending. We've paired the list with commentary from Jim Cramer if the stock is owned by his Action Alerts PLUS Charitable Trust Portfolio.