Oil supplies are starting to pile up again in the U.S., with crude inventories rising for the first time in seven weeks, according to the Energy Information Administration.

Savvy investors may be able to find some bargain stocks as a result, Goldman Sachs analyst Neil Mehta suggests.

Oil prices have collapsed as the coronavirus crisis has curtailed travel and economic activity. While some countries have eased lockdowns, allowing demand to recover, a rising number of new cases and higher oil output have weighed on prices.

Goldman is bullish on oil prices over the next year, estimating that Brent prices will surge to $65 a barrel by the third quarter of 2021 in part because of “recent positive vaccine headlines,” Barron’s recently reported.

Mehta likes certain refiners, particularly those with multiple business lines or unique catalysts:

• Phillips 66 (PSX) should prosper because of its gas station business, which he argues is “underappreciated.”
• Marathon Petroleum (MPC), another refiner, should benefit from its pipeline business that will profit from the improving natural gas market.
• PAR Pacific Holdings (PARR) is on his list because it also has a diversified business, with assets like gas stations.

Mehta also likes Canadian oil companies, which he thinks are in a strong position to generate free cash flow.

• Meg Energy (MEG.TO),
• Suncor Energy (SU),
• Canadian Natural Resources (CNQ),
• and Cenovus Energy (CVE)

Among large U.S. oil producers and majors, Mehta prefers:

• Chevron (CVX)
• ConocoPhillips (COP)

Meanwhile, world oil demand will fall more steeply in 2020 than previously forecast due to the coronavirus and recover more slowly than expected next year, OPEC recently said, potentially making it harder for the group and its allies to support the market.

World oil demand will tumble by 9.46 million barrels per day (bpd) this year, the Organization of the Petroleum Exporting Countries said in a monthly report, more than the 9.06 million bpd decline expected a month ago, Reuters reported.

"Risks remain elevated and tilted to the downside, particularly related to the development of COVID-19 infection cases as well as possible cures," OPEC said of the 2021 outlook.

"Increased usage of teleworking and distance conferencing is estimated to limit transportation fuels from fully recovering to 2019 levels."

That means demand will rebound more slowly than expected next year. OPEC sees consumption rising in 2021 by 6.62 million bpd, 370,00 bpd less than expected last month.

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