Credit Suisse Downgrades Chevron And Exxon Mobil, Still Sees Growing Demand Through 2030

Credit Suisse downgraded Chevron Corporation CVX to Neutral and Exxon Mobil Corporation XOM to Underperform Friday. The firm cut is price target on Chevron from $130 to $115 and  Exxon Mobil was cut from $90 to $82.

Analysts Edward Westlake and Zachary Deschaine thought “the 3 to 4.5 percent dividend yields of the US Majors...are defensible at $70's Brent,” however, “on the other side of this oil price recession, the group will have less production, more debt and lower upstream cash margins than they were projected to earn six months ago.”

Further impacting CVX is the $10 billion the company is spending on LNG projects in Australia, even though these will “deliver a long lived cashflow stream” eventually.

Westlake added that XOM has “targeted to grow its volumes modestly from 4mbd to 4.3mbd by 2017, as upstream margins expanded, with some investments still to pay off in the downstream, and with asset sales," however, "XOM's cash neutral 'oil price' was set to fall.”

Overall, the analysts noted that “the industry needs to put on stream about 50 million barrel per day new production by 2030, just to meet demand.” This means “replacing roughly 60 percent of current oil supply,” or “roughly the equivalent of 5 times the current output of Saudi Arabia,” within 15 years.

“To put that in context, US shale, with a backdrop of $100/bbl oil prices and rising industry debt levels, has added 5mbd in 4 years. We believe the rest of the world's resources will still play an important role in price formation over the medium term,” the analysts concluded.

Chevron Corporation traded at $108.19 in the pre-market, down 0.67 percent.

Exxon Mobil Corporation traded at $92.06 in the pre-market, down 0.87 percent.