With Oil Prices Down and Demand Slowing, Are Energy Stocks a Good Play?

Koesterich writes that oil prices are still a major player because energy is still a key commodity in manufacturing. It accounts for a large part of household spending, and still has a major impact on fiscal positions — especially in countries where oil is subsidized.

Oil demand will continue to grow despite constrained supply. "Oil prices remain elevated because global demand has continued to climb, despite slower growth in China, and supply overall has been unexpectedly constrained by both geology and geopolitical unrest," he writes.

Koesterich also says that investors should "maintain an overweight exposure to energy stocks" based purely on attractive valuations; energy sector valuations still have room to grow when measured against the S&P Global 1200 ndexes, he says.

"As you would expect, there is also some evidence that rising oil prices hurt consumer-related stocks—higher energy effectively crowding out other discretionary spending—but the relationship is not particularly strong," Koesterich said.

Koesterich also makes no assumptions when it comes to predicting the outcome of events that occur in the Middle East, but he does say that the knowledge that we have on the limited oil supply shouldn't be a shock. There are also good opportunities in certain integrated companies and exploration and production companies where there is resource growth or restructuring potential, he concludes.