Take profits on energy despite higher oil forecasts
Oil prices are likely to remain well above their levels prior to the Iran war, the consequences of which have choked global supply for the foreseeable future. But, after racking up record monthly gains in March, analysts at Wells Fargo say it is now “time to consider taking profits in energy.” The year-to-date performance of energy commodities has been the strongest since 2000 and Wells Fargo now sees “risk to prices as the downside through year-end rather than to the upside,” analysts wrote in a note published on Tuesday. U.S. crude oil futures for May delivery were down 0.76% at $90.59 per barrel as of 02:48 a.m. ET on Wednesday, as investors weighed prospects for fresh U.S. Iran peace talks, but remain well above levels below $70 seen before the war began. Mason Mendez, investment strategy analyst at Wells Fargo, said: “Historically, oil markets have been highly volatile, prices can swing rapidly as risks emerge or fade.” “While no two periods are the same, past instances, such as in the 1990s Gulf War and more recently Russia’s invasion of Ukraine in 2022, have shown that high prices were fairly short lived, and they tended to decline after the risk to oil supplies had passed,” he said. Despite the warning, however, Wells Fargo hiked its forecasts for oil prices this year. “A geopolitical risk premium will linger for the foreseeable future, especially if energy infrastructure is targeted over the coming weeks, which in effect will limit prices from falling to the lows seen last year,” Mendez said. “Therefore, we are concurrently downgrading the commodities energy sector from neutral to unfavorable and raising our 2026 year-end crude oil targets to $70-$80 per barrel for West Texas Intermediate (WTI) and $75-$85 per barrel for Brent crude. “We view Energy’s recent outperformance as an opportunity to lock in profits and reallocate to Industrial metals and precious metals — which we rate as favorable.”
