UBS slightly reduces forecasts for oil prices through to 2021 but retains a long-term oil price at US$70/bbl, which is expected through 2022-24. The revised outlook for the next couple of years reflects a more subdued view on global demand, in line with economic forecasts.
In turn, energy sector company valuations are reduced by -1-3%. Companies with more value attributed to growth are least exposed to downward revisions in near-term oil prices.
The main drag on global oil demand is the impact of the US/China trade dispute as these two countries account for around 33% of global oil demand and around half of the broker’s forecast global growth in 2020.
Santos is the least exposed of the Australian energy sector as it has materially reduced its oil exposure following the acquisition of Quadrant. Neutral maintained. Target is reduced to $7.20 from $7.30.
Target price is $7.20.Current Price is $7.63. Difference: ($0.43) – (brackets indicate current price is over target). If STO meets the UBS target it will return approximately -6% (excluding dividends, fees and charges – negative figures indicate an expected loss).