Paradigm Capital Ups Oil Price Forecast, But Remains Cautious On Energy Stocks

WTI crude oil prices dipped back below $40/bbl on Monday for the first time in several months on growing concerns about U.S. gasoline oversupply and fears that global producers are ramping up crude production too soon.

According to Paradigm Capital analyst Ken Lin, oil stocks will likely continue to be pressured by seasonal weakness in the oil market.

“We expect prices to exhibit historical seasonal weakness over the short term and rally at the end of Q4/16 and into 2017 as the supply/demand equation becomes more balanced,” Lin explained.

Related Link: Crude Oil Dips Below $40 As OPEC And U.S. Producers Get Back In The Game

Paradigm upped its WTI crude oil price forecast for 2016 from $36.50/bbl to $45.00/bbl. The firm also upped its 2017 price forecast from $42.50/bbl to $52.50/bbl.

Despite the positive longer-term outlook for oil prices, Lin remains cautious on oil stocks in the near term.

For now, Paradigm is focusing on three specific types of energy stocks: oil stocks with clean balance sheets, LNG and natural gas stocks with large resource potential and discounted oil & gas stocks with strong management teams.

WTI crude has bounced 1.3 percent back above the $40/bbl threshold in early Tuesday trading. The United States Oil Fund LP (ETF) USO is now down 13.3 percent in 2016.

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Disclosure: The author holds no position in the stocks mentioned.