Earnings at the biggest international oil companies are set to slump later this year and in 2026, threatening the pace of buybacks, as a substantial oil market surplus would weigh on prices.
Last week Morgan Stanley joined other major investment banks in slashing oil price forecasts amid expectations of a larger market surplus later this year as OPEC+ plans to raise output much more than previously expected.
Morgan Stanley cut its oil price forecasts for the remainder of the year, anticipating a bigger glut. The bank revised down its projection of Brent Crude prices to $62.50 per barrel in the third and fourth quarters of this year, down by $5 per barrel from the previous forecast.
Now the bank expects Brent prices to fall below $60 per barrel by the first half of 2026 due to tariff-driven demand weakness and supply growth from OPEC+ and non-OPEC+ producers, according to a more recent note cited by Reuters.
Due to the expected weaker prices, Morgan Stanley expects buybacks at Big Oil to be reduced by between 10% and 50%, with net debt at the international majors rising.
Shell is the top pick of Morgan Stanley among the European majors, while BP was downgraded to “underweight” from “equal-weight”, as its debt ratio leaves it more vulnerable to changing macro conditions.
TotalEnergies, the French group, could see lower volatility in earnings, due to its higher integration along the value chain, according to Morgan Stanley.
During the first-quarter earnings, the majors maintained their dividend and shareholder distribution policies as most met or exceeded analyst expectations of first-quarter profits.
BP and Chevron reduced the pace of their share buybacks for the second quarter, but the others, Exxon, Shell, and TotalEnergies, maintained their guidance on repurchases despite the slump in oil prices at the start of the second quarter.
By Tsvetana Paraskova for Oilprice.com
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