Jefferies energy team out with a 2022 outlook note, and unlike peers at J.P. Morgan and Goldman Sachs, Jefferies takes a bearish tact on oil into next year (NYSEARCA:USO)(CL1:COM).
Jefferies sees OPEC+ flooding the oil market in 2022, leading to inventory builds and lower prices; currently, the bank forecasts $68 Brent (CO1:COM) in 2022 falling to $63 in 2023.
Conversely, Jefco sees falling European gas production, Nord Stream 2 uncertainty, and coal to gas switching driving gas prices higher - the bank increases their 2022 Euro natural gas price 44% to $15 / mmbtu.
With European oil companies (NYSE:RDS.A)(NYSE:BP)(NYSE:TTE)(NYSE:EQNR)(OTCPK:OMVKY)(NYSE:E)(OTCQX:REPYY)(OTCPK:GLPEY) trading on a 15% free cash flow yield on the relatively bearish Jefco 2022 commodity price deck, the analyst is bullish on the equities, having 5 out of 8 Euro majors buy rated.
Alongside the year ahead commodity outlook, Jefco upgrades Galp to buy on valuation - the former market darling, historically trading at a premium to the given long-term, low cost growth prospects in Brazil and Mozambique, Galp has wildly underperformed peers YTD (down 4% vs peers up 15% YTD).
Now trading at a 17% free cash flow yield on Jefferies commodity price forecast, Galp has a realistic chance of outperformance in 2022 if Petrobras (NYSE:PBR) can improve operations in a post-covid world.
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