Energy firms could be seeing a new supercycle according to analysts at JP Morgan who have highlighted Shell and BP as two of the best ways for investors to participate.
Oil prices are likely to ‘normalise’ at US$125 a barrel suggests the broker even with the potential return of Iran to the fold and a limited impact on Russian production.
This higher-for-longer oil backdrop and reset capital frames enable premium returns from the European oil giants and fund a credible energy transition.
JPM reckons share prices are still only factoring in crude prices of around US$65-70 a barrel and overlooking the prospect of soaring earnings and a potential return of 25% of the sector’s market value over the next three years.
“Normalisation to our ’22 base case ($90 Brent / $30 EU gas) still implies a premium 17% FCF [free cash flow] yield”, it added.
Shell is the broker’s top pick while BP has appeal for its beta [gearing] to the oil price, premium cash yields and a rate of change on transition.