BP and Exxon Downgraded by Redburn; Oil Price Forecast Reduced

Redburn Atlantic analysts have downgraded both BP and ExxonMobil, reflecting a more cautious outlook for the oil market. The equity research firm has adjusted its oil price forecast, lowering the 2025+ projection for Brent crude from $80 to $75 per barrel. This change is based on expectations of a looser oil market characterized by higher spare capacity, driven by increased non-OPEC supply and disappointing demand, especially from China.

The analysts noted, “While dividends remain secure, variable buybacks are likely to come under pressure next year, and we forecast that at least half of our coverage will need to reduce payouts.” This has led to a more cautious perspective on the sector.

The firm emphasized that OPEC+ may need to extend its voluntary production cuts to prevent oversupply. Nevertheless, even with these interventions, analysts anticipate a shift in the market from a deficit in the latter half of 2024 to a surplus in the early half of 2025, which could further exert downward pressure on oil prices.

Consequently, Redburn has downgraded BP from a Buy to a Neutral rating, lowering its target price from 570p to 500p. This downgrade stems from concerns regarding BP’s financial health, as the company might have to reduce its buyback program next year. Analysts predict that buybacks could decrease to around $4.5 billion in 2025, down from previous estimates of $6 billion, highlighting BP’s vulnerability to further decline in commodity prices due to its stretched balance sheet. Analysts remarked, “We see no clear pathway to significantly degear the balance sheet, leaving the company among the most exposed to any further commodity weakness.”

ExxonMobil also received a downgrade to Neutral, with a revised target price of $120, inched up from $119. Analysts raised valuation concerns, pointing out that Exxon is trading at a 20% premium compared to its peers based on the 2025 estimated enterprise value to discounted after-tax cash flow (EV/DACF) and boasts a 7.3% free cash flow (FCF) yield. Despite Exxon’s robust balance sheet and growth-focused portfolio, these advantages seem already baked into the stock’s significant year-to-date performance. In addition, weaker refining margins are identified as a near-term challenge for Exxon.

In contrast, Redburn holds a more favorable view on Shell and Eni, highlighting their stronger balance sheets and more resilient distribution outlooks.