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:

• The analyst maintained an Overweight rating and a price target of $125 on Exxon Mobil Corporation (NYSE:XOM), citing its defensive characteristics in downside scenarios and portfolio of high-value projects in both upstream and downstream operations.
• JP Morgan remains 'Not Rated' on Chevron Corporation (NYSE:CVX) due to its involvement in the HES acquisition.
• Also, Royall reiterated the Overweight rating on Cenovus Energy Inc (NYSE:CVE), viewing it as a unique execution story with the most attractive valuation in the coverage group.
• The analyst downgraded the rating for Imperial Oil Limited (AMEX:IMO) to Underweight from Neutral, citing its low free cash flow yield and free cash flow to enterprise value ratios for 2025-2026.
• Apart from this, the analyst maintained Neutral rating on Canadian Natural Resources Limited (NYSE:CNQ) and Suncor Energy Inc. (NYSE:SU).

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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