Concurrent with rising crude oil prices, CIBC World Markets Inc. is pushing its recommended weight for energy stocks up to 23%.

Although the market weight for the sector is 17.5%, CIBC says that it is lifting its overweight in oil and gas stocks to 23%, “given prospects for continuing high prices on tight capacity, Mideast tensions and above-trend demand growth.”

CIBC says that oil’s present rally appears to have staying power unlike the last trip above $40 in 1990. “The fast growth of economies like China and India, which are 2-3 times as energy intensive as the mature industrial countries, means the world is fast eating through its limited supplies of low cost conventional crude,” it says. “Dwindling US conventional supplies and peaking Canadian production are likewise constructive for natural gas, which has doubled in price in the last two years.”

“Although energy stocks have been the TSX ‘s second best performer in 2004, valuations still do not factor in sustained high energy prices. The energy index ‘s underlying value is around 1900 at the standard five times the cash flow generated by $40 a barrel West Texas Intermediate and $6.50-$7.00/Mbtu natural gas,” it says.