Oil Prices Are Surging Again. Goldman Sachs Sees Bigger Opportunities Beyond Refiners

Energy markets run on confidence, and right now there isn't much of it in the Gulf. Attacks on Saudi Arabia have pushed crude back toward levels traders hoped were behind them.

Brent touched $112.68 a barrel on Oct. 22, its highest since May 18, while West Texas Intermediate briefly cleared $100. With tensions showing little sign of easing, Goldman Sachs is looking beyond refiners to find the next opportunities in energy stocks.

Traders are pricing in more attacks

Houthi drones struck Saudi Arabia's Shaybah oilfield and Dammam's international airport. The kingdom's energy ministry said production was unaffected, although Saudi Aramco instructed employees to leave its Dhahran headquarters and work remotely.

Crude shipments haven't slowed significantly either. Middle East exports averaged around 17M barrels per day last week, according to Morgan Stanley analysts.

That leaves traders paying a premium for the possibility of future disruptions rather than an immediate shortage.

Where Goldman is pointing now

The conflict with Iran is about to enter its ninth month, with no resolution visible. Refiners, which buy crude and sell fuels, have been the standout trade of that stretch.

Goldman Sachs analyst Neil Mehta is now steering clients elsewhere. He hasn't turned on refiners, but after their long run he sees better opportunities in producers and pipelines.

On the large-cap side, Mehta favors ConocoPhillipsCOP and Occidental PetroleumOXY, both run by new chief executives. Conoco handed the job to Andrew O'Brien, and Goldman is watching the Willow project in Alaska plus a damaged gas plant at QatarEnergy that Conoco has a stake in.

Occidental, led by Richard Jackson, was upgraded to Buy and added to Goldman's America's Conviction List. The company carries heavy debt and is working through a plan to lift cash flow.

Two names outside the spotlight

Permian ResourcesPR is the smaller pick. Goldman's team sees free cash flow, the money left after running the business and funding drilling, growing around 20% for the next couple of years as the company tilts toward oil-focused production.

TC EnergyTRP is the pipeline idea. Mehta's team expects more US project announcements and says it's more comfortable with the funding outlook after a pullback.

Inventories give the trade a floor. US crude stocks fell 3.06M barrels over the past week, while Washington is so worried about diesel that it has offered to lend out close to a third of its 1M barrel heating oil stockpile.

What could reverse the rally

Any meaningful peace agreement with Iran could quickly change the outlook. Energy producers generally benefit from stronger crude prices, leaving their shares vulnerable if tensions ease and oil retreats.

Pipeline operators face a different risk from the upcoming US midterm elections. A shift toward Democratic control of Congress could make new fossil fuel infrastructure harder to approve, potentially limiting TC Energy's future projects.

Wall Street is already anticipating lower prices further out. Bank of America expects Brent crude to average $100 in the fourth quarter of 2026 before falling to $77 by the third quarter of 2027.

How to think about exposure

Earnings fill in the blanks this week and next. SLBSLB reports Oct. 23, with ExxonMobilXOM and ChevronCVX landing Oct. 30, and guidance counts more than the headline numbers.

The rotation favors upstream producers and midstream pipelines over refiners. Upstream names capture crude strength directly, while pipeline operators earn fees tied to the volumes they move.

Smaller pure-play producers sit in the same bucket. Magnolia Oil & GasMGY generates about $1.5B of revenue from US exploration and production in South Texas.

The cleanest read is that refining's big move has already happened, and the next leg depends on barrels in the ground and the pipes that carry them.