Sometimes, the entire story changes in a week. For oil markets, that story was the bear case—the one about growing supply, building inventories, and a smooth path down to $60 a barrel. It made sense. Then someone closed the Strait of Hormuz.
Now, Wall Street is scrambling to rewrite the script. The disruption at one of the world's most critical oil shipping lanes has forced a fundamental reset, starting with the price of crude itself and rippling out to every company that pumps it out of the ground.
Last week, Bank of America's commodity strategist Francisco Blanch did the first major rewrite, lifting his 2026 Brent crude forecast from $61 to $77.50. This week, the bank's equity desk followed with the sequel: repricing nearly the entire U.S. oil and gas sector.
In a note shared Monday, equity analyst Kalei Akamine raised price targets on 14 oil-levered exploration and production companies by an average of 17%. The reason is simple: the foundation of the bearish argument has vanished.
The Bear Case's Missing Foundation
For most of last year, the oil bear had a clean thesis. OPEC wanted to unwind production cuts, supply was growing, and inventories were building. It all pointed lower.
The Strait of Hormuz closure ended that in days. Nearly 20 million barrels of oil and refined products move through that narrow passage every day. According to Bank of America, the market is now pricing in a structurally tighter oil balance after shipments abruptly stopped nearly two weeks ago.
"Nearly 200 million bbls of crude have already been choked off from the global market, wiping away 50% of the 400 million bbl build that occurred last year," Akamine said.
That inventory build was the bedrock of the bear case. With half of it gone in a flash, the bank had to raise its oil price forecasts.
The new $77.50 Brent forecast for 2026 isn't a single guess. It's a blend of two equally weighted paths: a quick resolution that normalizes oil flows and gets prices to around $70 by April, and a prolonged conflict that could push Brent toward $85 through the second quarter. There's also a third, less likely scenario—considered remote—that puts Brent at $130 if the war extends into the second half of the year.
In other words, they've built a forecast for a world where the old rules no longer apply.
So, Which Stocks Win in the New Math?
With those stronger oil price assumptions, Bank of America went to work on its stock models. The result: higher price targets across its coverage.
Among large-cap producers, the bank favors Diamondback Energy (FANG) as its top pick, raising its price target from $180 to $202. Analysts highlighted exceptionally strong well performance in the Barnett formation, where some wells delivered 12-month cumulative output of 24 barrels per foot, compared to about 16 barrels per foot for peers.
In the mid-cap space, Devon Energy (DVN) and Ovintiv (OVV) are the firm's top picks. Devon's target was raised to $53, supported by what analysts see as a large inventory of low-breakeven drilling locations in the Delaware Basin. Ovintiv's target increased to $63, with analysts citing improved asset quality and strong free-cash-flow potential.
The firm also reiterated a bullish view on California Resources Corp. (CRC), raising its target to $76 after the company issued stronger-than-expected 2026 guidance.
It's not all upside for everyone, and the bank includes a note of caution. Despite the near-term supply shock, oil markets could return to surplus conditions once geopolitical tensions eventually ease. On a WTI basis, the bank estimates the E&P stock group is currently discounting a long-term oil price in the range of $60–$70 per barrel. The recent target hikes are an adjustment toward a new, tighter reality, but the sector's valuation still has one foot in the old world.
