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ASX 200 oil stock winners and losers over the next 2 months

ASX energy stocks are poised for a positive start to the trading day but a leading broker warns that not all can continue to outperform in the near-term.

The West Texas Intermediate (WTI) crude price gained 1% to US$53.36 a barrel in overnight trade while the Brent benchmark added 0.6% to US$59.06 a barrel.

Despite the more positive sentiment in the past few days to economic growth (and commodities by extension), some ASX oil and gas stocks are poised to fall over the next 60 days, according to Morgan Stanley.

These tend to be the ones that have outrun the sector and the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.

Getting off the beach

The Beach Energy Ltd (ASX: BPT) share price is one prime example. Shares in the fledging company rallied over 20% in the past three months and Morgan Stanley is warning that the BPT share price is about to return some of these gains in the next 60 days.

“Beach has been the best performing stock in the Australian Energy index,” said the broker, who rates the chance of a pullback at 80% plus.

“We expect the share price to decline as investors focus on less free cash near term. The stock has traded up materially above our long-term valuation and we expect a near-term unwind.”

The broker has an “equal weight” (equivalent to a “hold”) recommendation on the stock with a price target of $2 a share.

Running out of puff

Another in the sector with an 80% plus chance of underperforming in the next two months is the Santos Ltd (ASX: STO) share price. The stock got a big boost after announcing a $2.2 billion deal to buy several of ConocoPhillips’ northern Australian assets.

But Morgan Stanley thinks the good news is already in the price and the large acquisition will put a big dent in the company’s cash flow.

Morgan Stanley rates the stock as “equal weight” with a price target of $8 a share.

Fuelling for a run

But it isn’t all bad news. The broker believes the Oil Search Limited (ASX: OSH) share price is heading the other way over the same time period.

“This is because the stock has traded off recently, making short term valuation much more compelling. Oil Search has underperformed peers over the last 12 months,” said the broker.

“We think resolution to PNG expansion is nearing and see positive catalysts in Alaska for expansion with FEED year-end and resource update. Exploration drilling in Q1 2020 will add excitement.

“We estimate that there is about an 80%+ (or “highly likely”) probability for the scenario.”

Morgan Stanley rates the stock as “overweight” (equivalent to a “buy”) with a price target of $8 a share.

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