Raising Fair Value Estimates Across Our Energy Coverage After Lifting Midcycle Oil Price Assumption

We’ve updated our midcycle oil price assumption. Our 10-year forecast marries our bullish in-house oil demand view with Rystad’s supply projections, which align with our revised long-term take.

Why it matters: Our midcycle oil price is the most critical valuation input that flows through our energy models. It influences everything from pricing to capital spending decisions, which affects volumes developed and produced and ultimately processed, transported, and refined.

• Future supply constraints drive our expected price higher. We expect stable real oil prices typically ranging from $60 per barrel to mid-$70/bbl until 2035. As we approach the middle of the next decade, we see demand declining, but far slower than supply, causing oil prices to inflect sharply.

The bottom line: We raise our midcycle oil price to $65/bbl Brent ($60/bbl WTI) from $60/bbl Brent ($55/bbl). From 2035-50, we expect oil demand to decline by 15% to 90.8 million barrels per day, or a negative 1% CAGR, but we expect supply declines by well over 20%, or a negative 2% CAGR.

• We don’t expect any new major supply source like deepwater or shale in 2010-30. As for demand, we’re slightly more bullish since our last update, driven by shipping, aerospace, and petrochemical demand, as well as fewer automotive efficiency gains, but offset by our bullish EV views.
• Integrated oils experience an average fair value estimate increase of 6% as some valuations rise more than others, due to differing exposures and asset compositions. Updates to near-term oil prices, refining margins, and long-term cost and downstream earnings assumptions also influence the degree of the change.