Raymond James analysts said they now view oil-sensitive equities as carrying asymmetric upside following conversations with investors and the brokerage's conference in Orlando. The firm reported that discussions since the onset of the Iran conflict in early March have centered on how to position energy portfolios amid the geopolitical shock.
According to Raymond James, investors still appear inclined to discount geopolitical threats based on a multi-decade pattern of fading such risks, even while acknowledging the current situation could unfold differently. The firm emphasized that the Iran conflict has entered its third week with no immediate resolution in sight.
At the same time, Raymond James said global oil inventories are being drawn down by millions of barrels each day. The brokerage argued that this ongoing depletion addresses oversupply worries that were present at the beginning of the year, shifting the supply-demand narrative for the market.
Examining market reactions, Raymond James noted that Canadian energy equities have risen only by mid-single digits month-to-date, despite a substantial increase in spot oil prices and futures curves trading well above where they began the year. The brokerage interpreted this muted equity response as an underreaction to what it described as the largest supply shock that this generation of investors has faced.
Raymond James also considered what drove the sector's comparatively strong performance through February. The firm listed several factors it believes contributed beyond geopolitical considerations: a more favorable political and regulatory environment in Canada; a visible pipeline of oil egress expansions; sector rotation into energy driven by concerns about AI-related disruption in other areas; a weaker Canadian dollar coupled with tighter Western Canadian Select differentials; and a low starting valuation combined with demonstrable capital discipline.
On fundamentals and valuation, Raymond James said many upstream energy names still trade at double-digit sustaining free cash flow yields on the assumption of $70 per barrel WTI. The brokerage described that level as straightforward to model over the coming years, citing the material effect on inventories observed just two weeks into the conflict and its expectation that reduced flows through the Strait of Hormuz will persist.
Looking at market pricing, Raymond James reported that the FY26 strip for the remainder of the year is trading above $85 per barrel, and that the FY27 strip sits slightly above $70 per barrel. The firm concluded that the risk to strip pricing over the next few years is skewed to the upside.