Of all the brokerage firms that can make waves with new sector and market research calls, Goldman Sachs would be considered at the top of the list. After all, Goldman Sachs only caters to institutional investors and to high net worth individuals. So they get to influence where the money goes.

Now Goldman Sachs is raising expectations on the oil sector. This latest call has some serious caveats on timing, but the firm sees a higher floor in oil now and is making key changes in its ratings on oil and gas stocks.

After having initially suggested that oil would be in a downside of $20 to an upside of $40 range, now Goldman Sachs has adjusted its range to a downside of $25 and an upside of $45. That is a second-quarter call, versus the first-quarter call. Does that sound like a screaming call that oil has bottomed out? Goldman Sachs seems to think so.

Goldman Sachs sees the new oil order in its version of the good, the bad and the ugly. Investors need to understand that even at $45 there are still many problems in the oil patch. There will still be bankruptcies, defaults, challenged balance sheets, capex cuts and layoffs. Goldman Sachs now sees a $35 target for the second quarter and is expecting more like $40 in the third and fourth quarters.

Before taking this as a screaming buy consider this: Goldman Sachs did warn that the subsequent price recovery will only be gradual and will go at the same pace as the inventory drawdowns take place. The team’s Damien Courvalin and Jeffrey Currie did warn that investors need to prepare for more choppiness as storage constraints, oversupply and volatile pricing all work simultaneously. Be advised that Goldman Sachs actually thinks oil likely heads lower before it heads higher.

All caveats aside, Goldman Sachs made many key analyst changes in the oil and gas sector on Friday. Some ratings changes are for the better, and some were given outright downgrades. 24/7 Wall St. has focused on the Buy ratings and the upgrades first, with the downgrades following after. Also included at the end of this report is the formal wording of the Goldman Sachs summary.

Chevron Corp. (NYSE: CVX) was raised to Neutral from Sell with a $94.00 price target. This is up from a $78.00 prior target and versus a $93.94 prior close. It has a consensus analyst target of $95.80 and a 52-week trading range of $69.58 to $112.20. Chevron just this week went out on a limb by maintaining and growing its dividend despite lower capex and lower profits.

Diamond Offshore Drilling Inc. (NYSE: DO) was raised to Neutral from Sell and the price target was raised to $24.00 from $18.00. The consensus price target is $18.70 and the 52-week range is $14.18 to $35.95. The company has a market capitalization of about $3.1 billion.

Oasis Petroleum Inc. (NYSE: OAS) was raised to Neutral from Sell with a $7.25 close (versus a $7.14 close). Oasis has a consensus price target of $7.87. The 52-week range is $3.40 to $18.86, and the market cap is $1.3 billion.

Weatherford International PLC (NYSE: WFT) was raised to Buy from Neutral and the price target was raised to $9.75 from $8.00 (versus a $6.61 close). It has a consensus price target of $9.20 and a 52-week range of $4.95 to $14.91. The market cap is about $5.6 billion.

Royal Dutch Shell PLC (NYSE: RDS-A) was added to the prized Conviction Buy list. The 52-week range is $35.80 to $64.46, and the market cap is around $154 billion.

Total S.A. (NYSE: TOT) was maintained as Buy but was removed from the Conviction Buy list. The stock closed most recently at $45.69. The consensus analyst target is $52.83, and the shares have a 52-week range of $39.05 to $54.79.

Anadarko Petroleum Corp. (NYSE: APC) may have been in the news this week with another 1,000 oil job cuts, but Goldman Sachs raised its rating to Buy from Neutral, and the price target was raised to $58.00 from $50.00, after shares closed at $42.50. The consensus price target is $57.65, the 52-week range is $28.16 to $95.94, and the market cap is $23 billion.
Carrizo Oil & Gas Inc. (NASDAQ: CRZO) was raised to Buy from Neutral with a $37 price target (versus a $25.73 close). It has a consensus price target of $35.08 and a 52-week range of $16.10 to $56.77. Its market cap is $1.7 billion.

Cenovus Energy Inc. (NYSE: CVE) was already rated as Buy but was added to the firm’s Conviction Buy list. Its price target is $16.00, versus the previous $12.47 close. Cenovus has a consensus price target of $14.42 and a 52-week range of $9.10 to $19.72. Its market cap is nearly $11 billion.

FMC Technologies Inc. (NYSE: FTI) was raised to Buy from Neutral with a $30.50 price target (versus a $25.36 close). Here, the consensus price target is $31.00, compared to a 52-week range of $22.30 to $44.43. The market cap is $6 billion.

Oceaneering International Inc. (NYSE: OII) was raised to Buy from Neutral with a $40 price target (versus a $28.61 close. The consensus price target is $31.00, while the 52-week range is $25.33 to $59.65. The market cap is $3 billion.

RSP Permian Inc. (NYSE: RSPP) was raised to Buy from Neutral with a $34 price target (versus a $25.69 close). The 52-week trading range is $16.74 to $31.15. The consensus analyst target is $30.34. The market cap is almost $3 billion.

As we warned, there are the bad and the ugly to this call too. Here are many of the Goldman Sachs analyst downgrades to end the week. Note that some of the price targets are substantially lower.

Atwood Oceanics Inc. (NYSE: ATW) was downgraded to Sell from Neutral with a $5.00 price target, after closing previously at $9.08.

Cheniere Energy Partners L.P. (NYSE: CQP) was downgraded to Neutral from Buy with a $30 price target (versus a $26.97 prior close).

EP Energy Corp. (NYSE: EPE) was downgraded to Sell from Neutral with a $4.50 price target (versus a $5.29 close).

Helmerich & Payne Inc. (NYSE: HP) was downgraded to Neutral from Buy, but the price target was raised to $60.00 from $55.00, after a $61.96 close.

NGL Energy Partners L.P. (NYSE: NGL) was downgraded to Sell from Neutral with a $6 price target (versus an $8.33 close).

Noble Corp. PLC (NYSE: NE) was downgraded to Sell from Neutral with a $5.50 price target (versus an $11.02 close).
RPC Inc. (NYSE: RES) was downgraded to Neutral from Buy, but the price target was raised to $15 from $14, after closing at $14.25.

Summit Midstream Partners L.P. (NYSE: SMLP) was downgraded to Neutral from Buy and the price target was lowered to $16.00 (versus a $14.88 close).

Western Gas Equity Partners L.P. (NYSE: WGP) was downgraded to Neutral from Buy with a $34 price target (versus a $31.28 close).

Below is the summary so investors can see exactly what Goldman Sachs was saying here in its outlook for oil prices ahead.

The good: ‘green shoots’ of rebalancing
After an 18-month wait, and thanks to a $32/bbl average oil price ytd, non-OPEC producer guidance is finally pointing to declines, helped in the short term by a rise in disruptions. As we do not expect growth from OPEC & Russia after 2Q16 and given our expectation for resilient demand growth, our confidence that stocks will draw in 2016 if prices remain low is rising.

The bad: premature price recovery
The lack of a supply response in 2015 has shifted over the past month into consensus expectations for broad-based supply declines in 2016. This adjustment is only just starting however and sustained low prices are necessary in our view to maintain a sufficient level of financial stress to finish this rebalancing process, especially as funding markets have yet to shut. This is why an early rally in prices before a deficit materializes would prove self-defeating, as it would reverse these nascent supply curtailments.

The ugly: risks of saturation still high
While supply responses and US stock draws on the horizon suggest price lows may have been set, the risk that US storage saturation pushes prices sharply lower in coming weeks remains high in our view. Current US inventory builds are setting new record highs for storage utilization and we expect these builds to continue through April. Further, the risk of petroleum product storage saturation pushing refinery runs lower in the face of strong imports could more than offset US production declines.

Still a trendless and volatile market
We believe that storage constraints and a still large oversupply in coming months will continue to keep prices in a trendless and volatile range. We expect this range to rise to $25/bbl to $45/bbl in 2Q16 – up from $20/bbl to $40/bbl in 1Q – given the friction associated with undoing the supply green shoots and with the odds of hitting storage capacity diminishing as time passes. From our 2Q16 WTI price forecast of $35/bbl, we continue to expect that the subsequent price recovery will only be gradual to match the pace of inventory draws with our 3Q16 and 4Q16 WTI price forecast at $40/bbl. We only expect US shale growth to be required in 2017, leading us to forecast prices of $55-60/bbl in 2017.

Again, this is not a straight up to the moon call for oil and oil stocks. There are many caveats, and there were many analyst downgrades for the sector stocks as well.

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