Morgan Stanley said the strong outlook for oil should lead to a “hot summer” for energy stocks due to stronger-than-expected demand this year. The investment bank upgraded the energy sector to “attractive” due to better-than-expected growth in major economies and improved crude demand forecasts. Morgan Stanley’s top picks on rising oil prices are BP, Total Energies and Repsol. The bank expects demand to increase by 1.5 million barrels per day this year, slightly above the historical trend of up to 1.4 million barrels per day. Concerns about Russian output have intensified as OPEC+ cuts production and Ukraine repeatedly attacks refineries, with rising demand clashing with limited supply. “Overall, we expect a supply deficit in the summer and global oil inventories to draw down in the second and third quarters,” Morgan Stanley commodities strategist Martijn Rats told clients in a note on Thursday. Ratz and his colleagues said strong demand combined with geopolitical risks should support Brent crude prices to $94 a barrel by late summer. Analysts at Morgan Stanley say BP shares have performed well so far this year, with its distribution yielding nearly 11%. The bank set a price target on BP of $49.90, which would imply an upside of about 26% from Thursday’s closing price of $39.65. Analysts at the bank said TotalEnergies has seen stronger growth, more stable returns and less earnings volatility than its peers. Morgan Stanley has a target price of $85.70 on TotalEnergies, which represents a 17% increase from the previous closing price of $72.95. Analysts say Repsol should have a free cash flow yield of 14% by 2025, one of the highest in the industry. Given management’s willingness to reward investors, this should translate into a shareholder distribution of about 14%, the bank said. Morgan Stanley’s price target for Repsol is 19.2 euros, or $20.44, implying a 23% upside.
