Mizuho and Barclays raised DVN targets to $68 and $62 on oil tightness. The divergence between crude prices and equity valuations is the central opportunity. Watch inventories and refining cracks.
Devon Energy (NYSE: DVN) received two price target upgrades within 48 hours last week, both built on the same structural oil market thesis. Mizuho raised its target to $68 from $62 on May 27, and Barclays pushed its target to $62 from $54 one day earlier. Both maintained buy-equivalent ratings. The catalysts are not identical: Mizuho leans on refinery economics while Barclays focuses on physical market inventories. The combined signal for DVN shareholders is that the gap between crude prices and equity valuations may be closing.
Mizuho analyst Nitin Kumar cited the Iran crisis as a persistent driver of global oil prices and refining margins. The firm raised its 2026 oil price forecast by 25% and its 2027 outlook by 6%. It also increased its projections for US refining cracks by 61% for 2026 and 51% for 2027.
Higher refining margins historically expand crude demand and widen differentials for quality barrels. For Devon, whose production is anchored in the Delaware Basin, wider margins reduce the risk of downstream bottlenecks that could compress realized prices. Kumar stated that a decline in stock valuations despite strong commodity prices has created an opportunity for investors to seek “alpha” in the US oil and gas sector. That statement frames the upgrades as a valuation trade, not a pure commodity call.
Barclays focused on the mechanics of the physical oil market. The firm cited declining inventories, reduced OPEC spare capacity, and a “muted” US production response to the Middle East conflict as contributing to a tighter backdrop. Barclays believes these conditions could lead to a share re-rating for oil-focused exploration and production companies after the conflict ends.
Barclays’ logic is straightforward for upstream investors. Declining inventories mean the market consumes more oil than it produces. Reduced OPEC spare capacity limits the cartel’s ability to stabilize prices during supply shocks. A muted US production response suggests the Permian and other basins are not growing fast enough to fill the gap. Together, these factors create a higher price floor than the one reflected in current equity valuations.
Both firms arrive at a similar conclusion through different mechanisms. Mizuho’s aggressive 61% refining crack increase for 2026 implies downstream margins will stay elevated even after the immediate crisis fades. Barclays’ inventory-led thesis argues the structural deficit is already here. The convergence of two independent models reduces the likelihood that either call is noise.
The simple read is that analysts raised targets because oil prices are higher. The better market read is that oil equities have not kept up with the rise in spot prices and forward curves. If oil stays at current levels or rises, producers generate free cash flow that reduces debt or funds buybacks, eventually lifting share prices. If oil falls, the stocks have limited downside because valuations already assume lower prices. That asymmetry is the alpha Mizuho is targeting. Barclays makes a similar case for a post-conflict re-rating when investors return to fundamentals.
A no-brainer buy signal does not exist here. The risk case matters.
DVN is the direct beneficiary, the logic extends across independent oil and gas producers with strong Delaware Basin exposure. WTI and Brent crude futures are the underlying price drivers. A failure of oil to hold recent gains would undermine both analyst calls. US refining stocks such as Valero, Marathon Petroleum, and Phillips 66 would gain from higher cracks if Mizuho’s margin forecasts prove accurate. Natural gas producers are less relevant here because Barclays lowered its near-term gas price outlook due to oversupply.
AlphaScala’s proprietary model rates DVN at Alpha Score 49/100, with a Mixed label. That reflects a neutral fundamental profile balanced by moderate valuation support.
The upgrades are forward-looking with an opaque timeline. Mizuho’s oil price forecasts extend to 2027, implying a multi-year view. Barclays’ re-rating thesis is tied to post-conflict conditions, which are unpredictable.
For traders building a watchlist, the Mizuho and Barclays calls provide a structured framework: buy the stocks when oil is strong stocks are weak, and sell when the two converge. The risk remains that convergence happens because oil falls, not because stocks rise. The data to monitor is inventory levels and refinery margins.
Related reading: Shale M&A Hits $38B in Q1 as Oil Consolidation Surges. Compare that consolidation trend with the muted production response that Barclays cites. The two narratives may appear contradictory. In reality, consolidation often slows drilling activity even as acreage changes hands, a dynamic that supports the tighter market thesis.
Disclosure: AlphaScala may hold positions in securities mentioned. This is not investment advice.
Prepared with AlphaScala research tooling and grounded in primary market data: live prices, fundamentals, SEC filings, hedge-fund holdings, and insider activity. Each story is checked against AlphaScala publishing rules before release. Educational coverage, not personalized advice.