Morgan Stanley: Here's How To Play Upstream Oil

In a new report, analysts at Morgan Stanley focused on the reeling North American oil industry. In the report, analysts further reduced their North American onshore spending forecast and discussed key themes investors should watch for in the space.

The Numbers

Analysts lowered their expectations for 2015 North American well-related spending from -27 percent year-over-year(Y/Y) to -35 percent. Analysts also expect 5-16 percent declines in international well spending this year.

Supply And Demand

Analysts believe that $50 Brent would likely mean that incremental oil production would fall below incremental demand in the second half of 2015. They forecast that Brent would need to reach $90 per barrel to balance incremental supply and demand in the long-term.

Themes

Analysts see four major themes playing out in the oil sector in coming months: international consolidation, company-specific catalysts, low premium steel prices and increasing well optimization. Despite the recent turmoil within the sector, analysts believe that there are plenty of stocks worth buying in the space.

Stock Plays

Morgan Stanley lists the following stocks as their top North American upstream plays:

Atwood Oceanics, Inc. ATW
Baker Hughes Incorporated BHI
C&J Energy Services Ltd CJES
Core Laboratories N.V. CLB
FMSA Holdings Inc FMSA
Halliburton Company HAL
Independence Contract Drilling Inc ICD
Nabors Industries Ltd. NBR
Pacific Drilling SA PACD
Precision Drilling Corp PDS
Patterson-UTI Energy Inc PTEN
RPC Inc RES
SeaDrill Ltd SDRL
Schlumberger Limited SLB
U.S. Silica Holdings Inc SLCA
Superior Energy Services, Inc. SPN
Weatherford International Plc WFT

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