WHAT YOU NEED TO KNOW

  • JPMorgan says it lacks a baseline oil forecast six months into the Iran conflict as key economic thresholds are crossed.
  • Goldman Sachs reiterated its Chevron buy rating and raised its 12 month target to $240.
  • BP and Crescent Energy also received favorable analyst calls based on balance sheet changes, valuations and cash flow prospects.
  • Refining stocks have surged with crack spreads, but a possible diesel export ban threatens margins, throughput and share prices.

Wall Street is built on the premise that analysts, bankers and traders can turn superior information and systems into confident forecasts. That makes JPMorgan’s admission about oil unusually blunt: amid the Iran conflict, its commodity team says it no longer has a baseline view.

At the conflict’s onset, the team assumed the U.S. administration would resist $100 oil, gasoline near $5 a gallon, 4% headline inflation or a 5 handle on the yield of the 10 year Treasury. Those constraints suggested a timeline, and JPMorgan expected some agreement to reopen the Strait by June.

Six months later, several lines had been crossed while the exit strategy grew less clear. Oil was above $100, gasoline stood at $4.37 despite the end of peak driving season, and diesel reached $6.31 a gallon heading into winter as inventories sat at record lows.

The central point is not a new price forecast, but the absence of one. The conflict had already lasted six months and could end in six days, six weeks or another six months, fade slowly without a clear finish, or escalate dramatically.

MORE NEWS: Oil Whiplash Erupts as Houthis Claim Saudi Strike and U.S. Pursues Iran Hormuz Deal

President Trump has said oil and gasoline prices will not fall until after the November 3 U.S. elections, which will determine the balance of power in Congress. Sources cited in the column believe he could then become more aggressive toward Iranian oil and energy assets, potentially lifting prices initially before expectations of higher exports pull them down.

Iran is suffering, its economy is hurting and its currency is collapsing, according to the account, yet the country has historically endured pressure and found workarounds. One cited method is transferring oil between ships, a practice the United States has also adopted.

Even with oil futures near $100, physical barrels in the Middle East cost much more, and crude has not surged to $125 or $150. That restraint persists despite a drone attack on Saudi Arabia’s East West pipeline and flows through Hormuz running far below levels seen when the war began.

Possible explanations include demand destruction, expectations of a quicker ending, repairs to the Saudi pipeline, undercounted flows or some combination of those factors. None is presented as certain, reinforcing the argument that oil could be far higher, but is not.

Russia may now matter more to global markets than Iran because diesel supply presents a more immediate threat. Ukraine has been bombing Russian refineries and severely curtailing global diesel supply, while prices in parts of Europe have exceeded $10 a gallon and continued rising.

Against that murky backdrop, Goldman Sachs reiterated a buy rating on Chevron and lifted its 12 month target by $15 to $240. Goldman expects Venezuelan production to double to about 600,000 b/d by 2031 and also favors Chevron’s power generation opportunities; its target exceeds the $223 Wall Street median and sits about 17% above the current trading level.

Evercore ISI added BP to its Tactical Outperform list while keeping its $52 target unchanged. Analyst Stephen Richardson expects BP’s balance sheet to rank among the most transformed in the second half of the year, citing commodity support and debt cuts intended to narrow its valuation gap.

BP has shifted back toward oil and gas after aggressively moving away from them. The company has a relatively new CEO, Meg O’Neill, and the column identifies BP as a particularly interesting company and stock to watch over the next 12 months.

MORE NEWS: Oil Prices Slide as Iran Revives Failed June Peace Memorandum

Truist also favors smaller producer Crescent Energy, assigning a buy rating and $19 target versus a $17.44 Wall Street median and a $21 target from Stephens. Analyst Gabe Daoud cites its earnings discount to peers, free cash flow yield and ability to do more with less rock.

The $4.5 billion company trades around $13 and operates mainly in the Permian Basin and Eagle Ford Shale regions of Texas. Meanwhile, refiners including Valero, HF Sinclair and Marathon Petroleum recently hit new highs, while Phillips 66, Par Pacific, PBF Energy and Delek remained near records.

Those refiners have benefited from rising crack spreads, the difference between oil prices and refined product prices used to gauge relative value. Yet with the exceptions of Delek and Par Pacific, the refining stocks are already above their Wall Street price targets.

Policy risk now hangs over that run. Citigroup says calls for diesel export restrictions are intensifying and warns a complete ban could cause refineries to reduce throughput as margins plunge, with cascading effects on gasoline and jet fuel prices.

Citigroup also says a full ban would likely end the historic run in refining margins and share prices. Industry contacts cited by the columnist argue a ban could instead worsen prices because refiners would cut output to manage storage, while diesel distribution systems cannot be easily rerouted.