Investing.com -- Jefferies has lowered its oil price forecasts for 2025 and 2026 by $10 per barrel, citing an increasingly oversupplied market and an uncertain demand outlook.
The brokerage now expects Brent crude to average $65 per barrel and WTI to average $61 per barrel in both years.
The downgrade reflects the impact of OPEC+’s decision to accelerate the unwinding of its 2.2 million barrels per day production cut.
Jefferies said the move raises the risk of a material oversupply beginning in the fourth quarter of 2025 and continuing into 2026. The revised forecasts are roughly in line with current futures prices.
Jefferies also reduced its 2025 gas price assumptions, lowering TTF to $12.6/mmbtu and JKM to $13/mmbtu, pointing to a weaker macroeconomic outlook in Asia and more flexibility around the European Union’s gas storage targets.
As a result of the updated commodity price deck and recent first-quarter earnings, Jefferies cut its net income and cash flow from operations estimates across the oil and gas sector by an average of 14% and 5%, respectively, for fiscal years 2025 through 2027.
The brokerage lowered its sector-wide price targets by an average of 10%. Valuations based on discounted cash flow and sum-of-the-parts models each fell by 11%.
Jefferies said most oil and gas companies will struggle to sustain share buyback programs at the new forecasted price levels, unless they rely on already announced divestments.
The brokerage warned of rising leverage across the sector, naming Equinor, BP (NYSE:BP) and TotalEnergies (EPA:TTEF) as the companies likely to face the fastest increases in debt levels over the next two years.
However, it noted that both TotalEnergies (LON:TTEF) and Equinor entered the year with strong balance sheets.
OMV is also expected to see a notable rise in leverage, attributed to the Borealis and Borouge transaction.
Jefferies said Shell (LON:SHEL) remains the most defensively positioned company in the group, with Galp and Eni expected to reduce debt levels following divestment plans.
BP was downgraded to “hold” from “buy,” with Jefferies cutting its price target by 29% to £3.9 per share from £5.5.
The downgrade was based on concerns about BP’s elevated leverage in a lower oil price environment and questions about the sustainability of its share buyback program if oil prices drop to $60 per barrel or below.
Jefferies also flagged execution risks tied to BP’s $20 billion divestment plan, citing the uncertain global macroeconomic backdrop.