Having oil drop from $100 a barrel to under $50 has come with a price for the oil and gas players. Investors have felt the pain, while consumers have gotten a pay raise from the savings at the gas pump. Now many new and existing investors are looking for opportunities in and around the energy sector. Wells Fargo made some broad calls on the oil market about what it sees coming for West Texas Intermediate (WTI) crude, as well as for some major oil companies.

Overall, the brokerage firm sees a negative direction going forward on the broad scope, but it does see some bright spots. The only oil companies that Wells Fargo maintained an Outperform rating for were ConocoPhillips (NYSE: COP), Occidental Petroleum Corp. (NYSE: OXY) and Exxon Mobil Corp. (NYSE: XOM). All other oil companies in Wells Fargo’s coverage universe of the majors in oil were given Market Perform ratings.

Based on a changed oil market environment characterized by lower oil prices, margins and earnings, Wells Fargo maintained that Integrated Oil & Gas and International E&P valuations have returned to a pre-2000s range. In terms of the valuation ranges of these companies, the firm made some adjustments:

• Chevron Corp. (NYSE: CVX) was lower to a range of $103 to $109 from $104 to $111.
• ConocoPhillips was moved down to $71 to $75 from $75 to $80.
• Hess Corp. (NYSE: HES) was lowered to $58 to $66 from $62 to $70.
• Marathon Oil Corp. (NYSE: MRO) was lowered to $26 to $28 from $27 to $29.
• Occidental was changed to $88 to $92 from $84 to $93.
• Exxon was moved down to $93 to $97 from $96 to $106.

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Wells Fargo poses the question of whether commodity price assumptions are too bullish:

A number of companies within our coverage universe have baked in a $60/bbl WTI price for 2015 from a capex/returns/production standpoint in their public presentations. Given an average WTI price of just under $50/bbl thus far in 2015 a recovery to a $60/bbl average for fiscal year 2015 would imply an average WTI price of >$63/bbl, or a 30% increase versus current levels. This is approximately $3-4/bbl above our second quarter to fourth quarter 2015 WTI price forecast. In our view, the prolonging of a potential recovery in crude prices could lead to further reductions in capex, earnings, and production and/or higher debt levels.

Looking ahead, Wells Fargo’s WTI estimates are generally more negative across the board. The new WTI per barrel forecasts for 2015, 2016, 2017 and 2018 were changed, respectively, to $56.63 from $58.13, $70 from $72, $72 from $73.50 and $71 from $75.

One problem that the market will have to tackle in the coming year is that U.S. crude oil inventories are at record highs, and they are looking to push higher through 2015. The firm says that it sees a balanced market evolving in the second half of 2015, but working down elevated inventories may suppress oil prices, versus the firm’s forecast for the second half of 2015 and 2016. At the same time, note that OECD Europe and Asia inventories are below their respective five-year averages, which could allow the corrective period of global inventory to unwind quicker than expected.

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ConocoPhillips shares were down 1% to $63.41 Tuesday morning, on a 52-week trading range of $60.57 to $87.09. The stock has a consensus analyst price target of $72.51.

Shares of Occidental were down nearly 1% to $73.37. The consensus analyst price target is $84.30, and the 52-week trading range is $71.70 to $101.38.

Exxon shares were down 0.6%, at $85.13 in a 52-week trading range of $82.68 to $104.76. The consensus price target is $93.20.

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