BP, Shell, Chevron shares on edge as Morgan Stanley slashes oil forecast

Global energy stocks have pulled back in the past few days as crude oil and natural gas prices slumped, and this trend may continue after Morgan Stanley warned of a global glut. Shell share price plunged to 2,900p on Monday, its lowest level since February, and 20% from the year-to-date high.

BP stock fell to 472p, down by 22% from the year-to-date high. Similarly, in France, TotalEnergies stock fell to 68 euros, 15% from its highest level in March. In the US, ExxonMobil and Chevron shares have all slumped by over 20% in this period, while the Vanguard Energy ETF (VDE) fell to $151 from the year-to-date high of $180.

Morgan Stanley warns crude oil prices will plunge further

These energy stocks are under intense pressure as crude oil prices continue falling. Brent crude dropped to $70 on Tuesday morning, while the West Texas Intermediate (WTI) fell to $69. 

Oil prices resumed their retreat after the US and Iran reached a deal to stop strikes that happened late last week. That deal means that more energy tankers are passing through the Strait of Hormuz this week.

As a result, there are fears that oil prices will continue falling in the near term. For example, in a note, analysts at Morgan Stanley warned of much lower prices as the world faces a glut. 

The bank expects that Brent will average $75 in the third and fourth quarters, down by $15 and $5 from the previous estimates. It expects that the average oil price will be $70 next year.

Other top analysts have slashed their oil forecasts. For example, Goldman Sachs revised the outlook for the fourth quarter to $80 per barrel, with WTI averaging $75. Citi sees oil prices averaging $75 a barrel, while JP Morgan sees it averaging $63 next year.

These estimates are likely optimistic as fundamentals and technicals suggest that prices have more downside to go. That’s because oil supply is expected to gain momentum in the coming months. This will happen at a time when demand destruction is taking place, meaning that prices may drop to $40 later this year.

Shell, BP, Chevron, and TotalEnergies profits to be impacted

Therefore, Shell, BP, Chevron, and TotalEnergies stocks have plunged in the past few months as investors predict that they will make less money in the second half of the year.

Estimates are these companies will see higher Q2 revenues as energy prices remained at an elevated level during the quarter. They will then start struggling and potentially reduce their buybacks in the next two quarters if oil prices continue falling.

In the last earnings report, Shell said that its profit jumped to $6.92 billion in Q1. The management then decided to slash its buyback to $3 billion, partly because of its decision to buy ARC Resources.

BP’s profit more than doubled to $3.2 billion in Q1, while TotalEnergies raised its buyback by over $1.5 billion. The situation was different in the United States, where Chevron and ExxonMobil reported weak earnings, with their profits falling sharply. 

Looking ahead, it is likely that these energy stocks will continue falling in the coming weeks as investors adjust to the new normal of low oil prices.