Goldman Downgrades Oil Sector With Lower Oil Outlook

• Year to date, the Energy Select Sector SPDR XLE has declined 19.2 percent.
• Goldman Sachs lowered its price target on 2016 WTI Crude Oil from $57 to $45 and simultaneously cut its outlook for midstream energy coverage from Attractive to Neutral.
• Goldman's Theodore Durbin said that the firm lowered its target prices for pipeline and MLP names by 16 percent, on average.

In response to an updated oil outlook from the Goldman Commodities team that saw their target price for WTI crude oil drop from $57 to $45 in 2016, Theodore Durbin lowered the firm's outlook for oil names. Durbin forecasted that U.S. oil supply would decline in 2016, while natural gas supply will remain relatively flat. In the equity space, that creates a "heightened risk that organic growth capex will roll over in 2016/2017."

However, Durbin said that there are "still opportunities despite challenging outlook." This means that "investors need to be selective," Durbin added. For what to look for, Durbin noted that the firm prefers "stocks with assets leveraged to demand-pull (vs. supply-push)." That criteria includes Kinder Morgan Inc KMI.

Alongside this note, Durbin upgraded Spectra Energy Corp. SE to a Buy, while downgrading Enable Midstream Partners LP ENBL, Memorial Production Partners LP MEMP, Oneok Partners LP OKS and Plains All American Pipeline, L.P. PAA to Sell. The price target on Spectra Energy was moved to $34, 18 percent upside. These ratings changes, Durbin said, "reflect an even more defensive stance."