BofA says 'higher-for-longer' oil will boost stocks beyond energy — here are some of its picks

Published Tue, Oct 18 20228:53 PM EDTUpdated Tue, Nov 8 20226:55 AM EST

Oil prices could stay elevated on the back of the recent OPEC+ decision to cut output by two million barrels a day , according to Bank of America. "The cut to oil production comes at a time when global inventories are already low and U.S. reserves are at levels not seen since the 1980s, pushing oil prices higher-for-longer," the bank's analysts wrote in an Oct. 17 note. They estimated that this could send oil prices to an average of $100 per barrel next year – 20% above consensus. Brent prices spiked to nearly $98 per barrel following the OPEC+ decision, but have since slipped, trading around $90 for Brent and $84 for WTI on Tuesday. Oil prices have been volatile this year, rallying following the Russia-Ukraine war before sliding on recession worries. But BofA is bullish on the sector, predicting that oil and gas stocks are set to benefit. It believes the OPEC+ group of major oil producers has changed its behavior in "important ways," becoming worried about inflation and turning "more assertive when attempting to preserve the value of its 'currency,' which is oil." The bank did caution, however, that "though seemingly unlikely, a risk to the higher-for-longer view is an about face from OPEC+." Stock picks A range of industries stand to be boosted by the OPEC+ policy, according to BofA analysts, including some surprising stocks such as airlines and consumer companies. "Higher gasoline prices mean higher inflation, which implies more margin pressure next year across multiple sectors – something the market isn't pricing in," they wrote. "Sectors exposed to higher energy prices and the secondary implications are Oil & Gas, LNG, Utilities, Alt. Energy, Nuclear, Airlines and Retail." Here are some of its stock picks: U.S oil and gas: PBF Energy , Valero , Chesapeake European oil and gas: Shell , TotalEnergies Renewable energy: NextEra Energy , FirstSolar Although airlines are usually hit by higher fuel prices, BofA highlighted two carriers that it says are the only two that hedge fuel: buy-rated Southwest Airlines and Alaska Air Group . It says American Airlines and United Airlines could be at most risk in a higher fuel environment. BofA added that it believes the OPEC+ cuts and higher oil prices increase the risk of a hard landing – and retailers offering discounted goods, such retailers, such as TJX and Burlington Stores , stand to gain. "Spending power will be squeezed, impacting consumer demand for discretionary products as a higher proportion of expenditure is spent on basic necessities," said the bank. "Retailers with the most exposure to the lowest income demographic customers typically see the greatest pressures on sales during high and rapidly rising gas price environments," BofA added. The banks' analysts keep their underperform rating on retailers such as Dollar General and Dollar Tree .