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Chevron (NYSE:CVX) and Occidental Petroleum (OXY) are upgraded Thursday at Scotiabank to Sector Outperform from Sector Perform with respective $195 and $90 price targets, raised from $170 and $63, as the bank expects oil majors overall will report lower Q/Q earnings due to potentially weaker trading results and large negative timing impacts in the U.S. due to rising oil prices.
Chevron (CVX) has the highest oil "torque" among the integrated supermajors, Scotiabank's Paul Cheng says, believing the company will enjoy macro tailwinds over the next few years given higher near-term and long-term oil price forecasts.
The analyst thinks TCO difficulties seem to be fully priced in the shares, and he remains optimistic that Chevron (CVX) will prevail in the arbitration against Exxon in Guyana, perhaps providing an attractive entry point for investors.
The bank's higher macro outlook for oil also contributes to Cheng's upgrade of Occidental (OXY), and the CrownRock acquisition should add meaningfully to free cash flow generation.
Occidental's (OXY) strong operational performance, especially in the Delaware Basin, is important at a time when Cheng believes "shale 3.0 principles have played out and the market will return to judging companies on their operating performance since essentially all E&Ps have adopted very generous shareholder return programs."
Scotiabank also expects refiners will report lower Q1 earnings despite higher benchmark indicators due to heavy turnaround impacts, lower wholesale cracks and a narrowing light-heavy oil spread among other factors.
PBF Energy (PBF) is a notable exception to this trend, the bank says, benefiting from a stronger than expected Mid-Continent margin despite the March turnaround at Toledo, while BP (BP) faces the biggest potential downside surprise due to difficulties from the unplanned one-month Whiting refinery outage.