Global Integrated Oil & Gas_ Global Oil in 2025_ Like 2024, But with Two Differences

Summary of Global Integrated Oil & Gas Conference Call Industry Overview - The conference call focused on the Global Integrated Oil & Gas industry, discussing market dynamics and forecasts for 2025 and beyond [9][26]. Key Points and Arguments Market Conditions - Overcapacity in Oil Markets: The global oil market is expected to remain in overcapacity, with an estimated 8 million barrels per day (mbpd) (approximately 8%) of capacity sidelined due to OPEC+ production cuts [11]. - Valuation Support: The sector is currently discounting $62 per barrel** for Brent oil, which is **15% below** forward curve prices, indicating better valuation support compared to previous years [12][51]. - **Political Changes**: A changing political landscape, particularly in the US, is anticipated to lower the cost of equity (CoE) for the sector, potentially benefiting investment [13]. Regional Performance - **US vs Europe**: The US energy sector has outperformed the European sector by an average of **10% per annum** since 2010, with expectations for continued outperformance in 2025 due to favorable political and capital allocation conditions [14][53]. Company-Specific Insights - **Chevron (CVX)**: The company is currently undervalued relative to peers, with potential upside linked to the mid-2025 arbitration regarding Guyana. The downside risk appears protected [15]. - **ConocoPhillips (COP)**: The company is viewed positively due to its growth prospects and portfolio depth, enhanced by synergies from Marathon [15]. - **Galp (GALP)**: The company is considered undervalued, particularly in light of its exploration potential in Namibia [15]. Gas Market Dynamics - **LNG Supply Growth**: Global LNG supply is projected to expand by **40%** from 2025 to 2028, which may impact pricing dynamics. European prices for 2025 are expected to average **$ 13.6 per MMBtu, significantly above long-run marginal costs (LRMC) of $7-8 per MMBtu [16][40]. Refining Sector - Refining Margins Normalization: After peaks in 2022/23, refining margins have normalized and are expected to align with historical averages. A 25% year-over-year decline in margins is anticipated for 2025 due to increased refining capacity and lower global oil demand [41]. Investment Outlook - Equity Performance: Historical trends suggest that oil equities underperform during periods of spare capacity. The expectation for 2025 is that the oil market will still face overcapacity unless valuation support is found [42]. - Capital Allocation Trends: US integrated oil companies are allocating a significant portion of their capital towards hydrocarbon monetization, while European companies are focusing on transition investments [56]. Additional Important Insights - Risks in Gas Pricing: The gas market is currently elevated, with traders overly concerned about winter risks, which may not materialize as expected [40]. - Long-term Growth Prospects: Companies like ConocoPhillips and Chevron are expected to see growth driven by upcoming projects and synergies, although the overall market remains cautious due to overcapacity concerns [57]. This summary encapsulates the critical insights and forecasts discussed during the conference call, providing a comprehensive overview of the current state and future outlook of the Global Integrated Oil & Gas industry.