JP Morgan analyst John M Royall highlighted key trends for the North American Integrated Oils sector entering 2025, with updates on forecasts, price targets, and ratings on major companies.

Rating/Price Target Update:

Sector View: Brent crude is expected to average ~$70/bbl in 2025, down from ~$80/bbl+ in 2024 YTD, driven by global supply growth outpacing demand, adds the analyst.

Royall says downstream performance is likely to remain below mid-cycle, with refined product supply and demand growing in tandem.

The analyst upholds an $80/bbl long-term crude price deck and mid-cycle crack spreads for 2026+, while forecasting ~$70/bbl Brent with flat spreads in 2025.

The analyst writes that defensive positioning should dominate in 2026, favoring U.S. companies with stronger free cash flow, balance sheets, and capital returns compared to Canadian peers.

With crude price scenarios ranging +/-$10/bbl around the base case, the downside case of $70/bbl Brent aligns with current strip prices, underscoring downside risks beyond 2026. Consequently, Royall prioritizes defensive names and companies with unique re-rating opportunities for 2025.

Macro Forecasts Update: The analyst updated the macro forecasts and models since the post-earnings review. The fourth-quarter Brent price deck remains at $75/bbl, in line with quarter-to-date levels and the strip, while the 2025 price deck stays at $70/bbl, consistent with J.P. Morgan’s outlook.

Royall says that higher Western Canadian Select prices and improved downstream cracks have driven a 9% increase in his fourth-quarter EPS estimates.

For 2025, EPS estimates are raised by 8%, also supported by stronger WCS prices. Despite these adjustments, the projections are 3% below Street estimates for fourth quarter and 27% lower for 2025, reflecting the conservative crude price assumptions and refining outlook, adds the analyst.

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