UBS is projecting that crude oil will have a yearly average of $156 a barrel by the year 2012, with the price rising steadily over the next four years, even though they see oil averaging $115 a barrel this year, about $10 less than the recent highs. This is a reversal from earlier coverage which predicted a pullback in oil prices as demand fell in the face of a potential U.S. recession. UBS has also stressed that it believes the increase in prices are mainly due to demand growth (not met by equal supply growth), rather than speculation.

Who does UBS see as benefiting from this increase in oil prices over the next four years? As to the major oil companies, UBS believes Chevron (CVX) will benefit, in addition to Occidental Petroleum (OXY), Apache (APA), ConocoPhillips (COP), and Exxon Mobil (XOM), all of which have buy recommendations. In addition to the major oil companies, UBS has also initiated coverage of oil service, drilling, and equipment firms. Current buy recommendations include Transocean (RIG), Diamond Offshore Drilling (DO), Noble (NE), Ensco International (ESV), Atwood Oceanics (ATW), and Rowan (RDC).

Of the group, the oil services and equipment analyst at UBS prefers Transocean, a recommendation that is due in part to the recent news of Petrobras locking up 80% of the deep water rigs, while also attempting to extend contracts with Transocean for over three more years (see earlier post). Current daily rates are topping over $600,000 a day for leasing deep water rigs, almost three times the average rate of $219,700 just a little over 6 months ago. A number of analysts are also picking up on this story.