Oil prices predicted lower on oversupply concerns

Berenberg has reduced its 2026 oil price forecast to US$65 per barrel from US$70, citing oversupply concerns and weakening macroeconomic indicators expected to drive a material increase in global inventories. This revised outlook has led to a 6% cut in 2026 earnings estimates across the integrated oil sector. While TotalEnergies was downgraded to Hold due to reinvestment ratios, BP, Repsol, and Shell remain Berenberg's top picks, with a potential oil price recovery anticipated beyond H1 2026 as supply growth moderates.

Analysis

Berenberg has materially revised its outlook for the integrated oil sector, lowering its 2026 oil price forecast to US$65 per barrel from US$70 due to anticipated oversupply and weakening macroeconomic conditions. This revision is predicated on expectations of a significant rise in global inventories through late 2025 and early 2026, prompting a 6% reduction in the bank's 2026 earnings estimates for the sector. Despite the bearish near-term price forecast, a potential recovery is anticipated beyond the first half of 2026, contingent on slowing non-OPEC supply growth and tightening spare capacity within OPEC. The analysis reveals a significant divergence in stock-specific outlooks; TotalEnergies has been downgraded to 'Hold' based on its elevated reinvestment ratio and the likelihood of reduced share buybacks. Conversely, BP, Repsol, and Shell remain 'top picks', distinguished by their strong free cash flow generation and shareholder return prospects, suggesting they are better positioned to navigate the weaker price environment. According to Berenberg, overall sector valuations are considered near fair value on these revised 2026 estimates.

Key Decisions for Investors

• Given the lowered 2026 oil price forecast and corresponding earnings cuts, investors should exercise caution on broad sector exposure, as Berenberg considers valuations to be near fair value, limiting general upside.
• It may be prudent to rotate capital towards integrated majors with strong free cash flow and shareholder return profiles, such as BP and Shell, which remain top picks despite the weaker macro outlook.
• Re-evaluate positions in companies with elevated reinvestment needs and potential for reduced buybacks, such as TotalEnergies, following its specific downgrade to Hold.
• Monitor non-OPEC supply data and OPEC spare capacity reports, as these are the primary indicators identified for a potential oil price recovery beyond the first half of 2026.