BP and Exxon downgraded to Redburn, oil prices cut by Investing.com

Redburn Atlantic analysts downgraded both BP (NYSE: ) and ExxonMobil (NYSE: ), a move that comes amid a more cautious outlook for the oil market.

The equity research firm revised its oil price forecast, with the 2025+ assumption for Brent crude reduced from $80 to $75 a barrel. This revision reflects expectations of a weaker oil market with higher spare capacity as non-OPEC supply rises and demand, particularly in China, continues to disappoint.

“While dividends remain safe, variable redemptions will be under pressure next year and we estimate that at least half of our coverage will be forced to cut payouts,” the analysts said. “This leads us to take an increasingly cautious view of the sector.”

The firm points out that OPEC+ will likely need to extend its voluntary production cuts to avoid oversupplying the market. However, even with these measures, analysts see the market moving from a deficit in the second half of 2024 to a surplus in the first half of 2025, creating further downward pressure on oil prices.

As a result of this weaker macro context, Redburn has downgraded BP from Buy to Neutral, lowering its price target from 570p to 500p.

The downgrade is driven by concerns about BP’s financial position, as the company’s buyback program may have to be scaled back next year. Analysts forecast a cut in buybacks to about $4.5 billion in 2025, down from consensus estimates of $6 billion, and highlight BP’s vulnerability to further declines in commodity prices due to its stretched balance sheet.

“We see no clear path to materially degrade the balance sheet, leaving the company among the most exposed to any further commodity weakness,” it noted.

ExxonMobil was also downgraded to Neutral with a revised price target of $120, up from $119.

Analysts cite valuation concerns, noting that Exxon trades at a 20% premium to its peers on 2025 estimated enterprise value on discounted after-tax cash flow (EV/DACF) and a return on free cash flow (FCF ) of 7.3%.

Despite Exxon’s strong balance sheet and growth-oriented portfolio, it is argued that these advantages are already reflected in the stock’s performance, which has risen significantly year-to-date.

Additionally, weaker refining margins are a near-term headwind for Exxon.

Unlike BP and Exxon, Redburn maintains a more favorable outlook for Shell ( SHEL ) and Eni ( E ), citing their stronger balance sheets and more resilient distribution prospects.