Oil, gas and energy prices will remain elevated in the medium term, making some ASX shares attractive for picking up now.
That's according to a memo from the team at Wilsons, which noted energy markets were tight even before the war in Ukraine due to a lack of capital expenditure.
"Post-Ukraine, the market has become even tighter, and some of this lost production now looks as though it will be permanently removed from the global energy market," read the Wilsons note.
"A stronger-for-longer outlook for oil and gas paints a bullish picture for energy stocks on the ASX."
The team also likes that the energy sector has historically acted as a hedge against inflation.
Australian energy shares have also underperformed compared to their overseas peers, giving the sector further upside.
"We think this discount to global peers could be unwound over the next 12 months as companies' and investors' objectives become more aligned."
So which is the stock that Wilsons analysts are the most bullish on?
'Still one of the cheapest' energy ASX shares
According to the memo, Santos Ltd (ASX: STO) is Wilsons' pick if they were to choose one energy investment right now.
"Our most preferred Australian energy exposure is Santos," read the note.
"We expect a re-rate from various catalysts over the next 12 months."
These stock price catalysts include:
- A final investment decision on the Dorado field in Western Australia
- Potential sell-off of 15% to 51% of its asset in Alaska, USA
- Potential sell-off of about 10% of its asset in Papua New Guinea
"The sell-downs allow STO to deleverage and implement its new capital management strategy," read the memo.
"This should substantially increase the capacity for further capital management over the next 12 months."
The Santos share price is already up 24% so far this year, while also paying out a 2.38% dividend yield.
Despite the recent gains, Wilsons analysts are convinced there is "significant upside" if oil prices remain high.
"Santos is still one of the cheapest large cap energy stocks on the ASX – Santos is trading with the lowest implied oil price at US$63/bbl."