Crude-Oil Weighted Stocks Favored by UBS

UBS has rejigged its commodity price outlook for the next two years, with the changes favoring crude-oil weighted stocks, Andrew Potter, analyst at UBS said.

“The impact of our revised assumptions varies considerably throughout our coverage universe, with crude oil-weighted names experiencing the largest increases in estimates, while natural gas weighted companies are negatively impacted,” he said.

Mr. Potter said oil is now expected to trade at about $85 a barrel in 2008, up 15% from previous estimates, and $78 a barrel in 2009, up 6%.

The price outlook for natural gas has been cut by 10% to $7.40 per mcf (thousand cubic feet) in 2008, and $7.75 per mcf in 2009. UBS has also downwardly revised its near-term Canadian dollar outlook to $1.00 from $1.03, adding positive tailwinds to all the names, Mr. Potter said.

He said long-term commodity and exchange rate forecasts were unchanged.

Within the large cap exploration and production integrated stocks, Mr. Potter said the top picks were Suncor Energy Inc. (SU), Canadian Natural Resources Limited (CNQ), Nexen Inc. (NXY) and UTS Energy Corporation [UTS/TSX].

Compton Petroleum Corporation (CMZ) remained its top pick among the juniors, with Addax Petroleum Corporation [AXC/TSX] preferred among the junior internationals.

Mr. Potter said Crescent Point Energy Trust [CPG.UN/TSX] and Vermilion Energy Trust [VET.UN/TSX] were the top picks in the energy trust space.