Goldman Sachs is bullish on large-cap energy opportunities amid rising oil prices and a capital spending cycle

Overview

This report discusses the impact of rising oil prices, a recovery in long-term oil and gas capital spending, and refining bottlenecks on large-cap energy stocks. Goldman Sachs combines two energy macro research pieces with single-stock views, arguing that there is upside to the back end of the oil curve, that energy producers need to raise reinvestment to replenish reserves and meet global marginal demand, and that near-term refining capacity tightness will support product margins such as diesel and jet fuel. Within this framework, the report highlights Halliburton, Cenovus, ConocoPhillips, Valero, and Diamondback as key recommendations.

Core views

The core views include: first, energy capital spending may trend higher, as declining reserve life and upward revisions to long-term demand expectations increase the need for reinvestment; second, oilfield services companies, especially Halliburton, are likely to benefit from a multi-year recovery in activity and pricing; third, the market is again rewarding producers with deep inventory and growth projects, supporting Cenovus and ConocoPhillips; fourth, the deepwater FID growth thesis remains clear; fifth, there is upside to the oil forward curve, and 2026 may shift from the surplus of 2025 to a clear deficit; sixth, slowing demand will need to be partially achieved through high refining margins; seventh, the long-term environment for refining stocks remains favorable, with Valero a key Buy; eighth, US shale still needs to provide a supply response; ninth, among shale producers, Diamondback has relatively strong response capability due to its DUCs and Permian inventory.

Analysis framework

The report uses a combination of top-down and bottom-up analysis based on macro commodity price assumptions, capital spending cycle analysis, industry supply-demand balances, refining margin indicators, and single-stock frameworks covering projects, inventory, and capital returns. At the macro level, it focuses on the Brent price curve, Hormuz disruptions, the 2026 supply-demand deficit, and the long-term cost curve; at the industry level, it focuses on oilfield service activity, deepwater FID, refining outages, and US shale growth; at the single-stock level, it maps these themes to the specific risk-reward profiles of HAL, CVE, COP, VLO, and FANG.

Methodology notes

• Macro commodity researchBrent price curve and supply-demand balance

  Assess upside in oil prices through near-term and long-term Brent assumptions, supply-demand deficits, and geopolitical risk premia.

  The report cites the commodities team's views on average Brent prices for 2026-2027 and the 2028-2030 forward curve, and translates them into an upward bias in energy equity valuation assumptions.

• Industry cycle analysisOil and gas capital spending cycle

  Reserve life, capex/boe, exploration investment, reinvestment rates, and long-term demand expectations jointly determine the capital spending cycle.

  The report argues that shrinking reserve life, low exploration spending, and the IEA's upward revision to 2030 demand forecasts will drive major oil and gas producers to increase reinvestment.

• Equity factor frameworkGS Factor Profile

  Use growth, financial returns, valuation multiples, and composite percentiles to compare stocks with the market and industry peers.

  The disclosure section states that the Goldman Sachs Factor Profile is built on forward-looking metrics such as sales, EBITDA, EPS, ROE, ROCE, CROCI, and valuation multiples.

• M&A frameworkM&A Rank

  Use levels 1 to 3 to measure the probability that a company becomes an acquisition target.

  The disclosure section states that M&A Rank 1 represents a 30%-50% probability, 2 represents 15%-30%, and 3 represents 0%-15%, and may affect the M&A component in the target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Halliburton Co. (HAL)

  Buy-rated name and a proxy for oilfield services recovery and rising global oilfield service activity.

  Strengths

  Improved pricing and activity in North America, with upside for about 40% of the portfolio; if international activity recovers, the remainder of the portfolio may also benefit; contract progress in Argentina provides a company-specific growth catalyst; healthy buybacks are expected to continue.

  Weaknesses

  If Middle East disruptions ease, some expectations for North American activity may be offset.

  Comparison

  Year-to-date performance is +43%, below SLB's +46% and Baker Hughes' +51%, but well above the S&P's +5% and XLE's +27%.

  Risks

  Falling oil prices, activity recovery below expectations, delayed incremental customer capital spending in North America, and slower-than-expected international recovery.

• Cenovus Energy Inc. (CVE)

  Buy-rated name and a proxy for Canadian heavy oil and long-term project growth.

  Strengths

  Christina Lake and West White Rose support the growth narrative through 2030; Canadian medium and heavy crude is attractive for medium-term demand in jet fuel and diesel production.

  Weaknesses

  Large project execution may face modest delays or challenges due to weather and supply chains.

  Comparison

  Along with ConocoPhillips, it is viewed as a producer benefiting from the market once again rewarding inventory depth and growth projects.

  Risks

  Project delays, heavy oil differential volatility, Canadian production and transportation bottlenecks, and slowing demand.

• ConocoPhillips (COP)

  Buy-rated name and a proxy for Alaska/LNG-driven free cash flow growth and a long-term project portfolio.

  Strengths

  Willow and Qatar projects support growth through 2030; it is on the Americas Conviction List; its free cash flow growth is viewed as not fully appreciated.

  Weaknesses

  Large projects have long cycles, and execution, weather, and supply chain risks may affect timing.

  Comparison

  Like Cenovus, it benefits from the market trend of rewarding reinvestment, long reserve life, and growth projects.

  Risks

  Project execution risk, LNG and oil price volatility, rising capital spending, and regulatory and environmental permitting risks.

• Valero Energy Corp. (VLO)

  Buy-rated name and a proxy for structural refining tightness and high free cash flow yield.

  Strengths

  The report believes the long-term refining backdrop is favorable, with structural tightness supporting an average free cash flow yield of about 10% for 2026E-2028E; multiple regional indicators show clear improvement in 1H2026 versus 1H2025.

  Weaknesses

  Refining indicators are highly affected by oil market volatility and should be interpreted cautiously.

  Comparison

  The report also mentions Marathon Petroleum as a refining Buy, but Valero is listed in the focus basket.

  Risks

  Falling refining margins, volatility in crude-product spreads, faster-than-expected global refinery restarts, and greater-than-expected demand destruction.

• Diamondback Energy Inc. (FANG)

  Buy-rated name and a proxy for US shale supply response and Permian inventory depth.

  Strengths

  It has a large DUC balance and can respond to positive oil price moves relatively quickly and with high capital efficiency; modest organic growth is expected in 2026, and frac crews may increase from 4.5 to about 5.

  Weaknesses

  Higher activity may lead to 2026 capital spending above previous expectations; it may eventually need to decide whether to add rigs.

  Comparison

  The report believes FANG has a uniquely strong rapid-response capability relative to peers among shale producers.

  Risks

  DUC depletion, weak local gas prices in the Permian, increasing shale maturity, tail risk of a crude export ban, and capital spending above expectations.

Key data

• Q2-Q4 2026 Brent assumption$90-100/bblGoldman Sachs commodities team quarterly average price assumption.
• 2027 Brent assumption$85/bblGoldman Sachs commodities team annual assumption.
• 2028-2030 Brent forward curve viewFutures around $70-75/bbl, expected realization of $75-80/bblThe report believes there is upside to the long end of the curve.
• Q2 2026 supply-demand deficit9.6 mb/d deficitThe report says the market shifts from a 1.8 mb/d surplus in 2025 to a deficit in Q2 2026.
• Full-year 2026 supply-demand deficit3.0 mb/d deficitGoldman Sachs' updated supply-demand assumption.
• Global oil demand changeDown 1.7 mb/d YoY in Q2 2026 and down 0.1 mb/d for full-year 2026High end-user prices suppress demand.
• Increase in US 2026 production forecast0.3 mb/dStill constrained by low DUCs, weak local gas prices in the Permian, and shale maturity.
• Valero indicator changes1H2026 vs. 1H2025: Gulf Coast +95%, Mid-Continent +41%, North Atlantic +32%, West Coast +66%Used to illustrate improved refining conditions, though the report cautions that interpretation should be careful amid oil market volatility.
• Goldman Sachs global equity coverage rating distributionBuy 50%, Hold 34%, Sell 16%Disclosed as of April 1, 2026, covering 3,074 stocks.

Impact & implications

For portfolios, the report translates rising oil prices and a capital spending recovery into three categories of opportunities: oilfield service activity and pricing recovery for HAL; long-term growth projects and resource depth for CVE, COP, and FANG; and refining bottlenecks plus high product margins for VLO. If the back end of the oil curve moves higher, current energy equity valuations based on roughly $75/bbl Brent may have room for upward revision; however, if Middle East disruptions ease, demand destruction exceeds expectations, or shale supply responds insufficiently, the near-term share performance and earnings leverage of these stocks could also be affected.

Risks

• If Middle East and Hormuz-related disruptions ease, the oil risk premium and some expectations for North American activity may decline.
• High end-user prices may cause demand destruction; the report already assumes global oil demand falls by 1.7 mb/d YoY in Q2 2026.
• US shale maturity, low DUC counts, and weak local gas prices in the Permian may limit supply response.
• Large oil and gas projects may be delayed by weather, supply chains, permitting, and execution complexity.
• Refining margins are affected by global refinery outages, restart timing, and product demand volatility, so indicator improvements may be hard to sustain.
• Although not the base case, the reimposition of a crude export ban remains a tail risk for the US oil market.

What to watch

• Whether the Brent forward curve moves from $70-75/bbl toward $75-80/bbl.
• Whether the 2026 supply-demand deficit approaches the assumed 9.6 mb/d in Q2 and 3.0 mb/d for the full year.
• Halliburton's progress on North American pricing, activity improvement, and international business recovery.
• Execution timing of Cenovus' Christina Lake/West White Rose and ConocoPhillips' Willow/Qatar projects.
• Valero's commentary in earnings on Q2 business momentum, refining margins, and physical market premiums.
• Whether Diamondback adds rigs, whether frac crews rise to about 5, and the pace of DUC balance depletion.
• Global refinery outages, especially capacity changes in the Middle East, China, Japan, Southeast Asia, and Russia.