MW JPMorgan cuts S&P 500 target as analysts say the domino effects from oil-price shock isn't baked in
By Jules Rimmer
European oil majors offer more leverage to higher oil prices than their U.S. peers
Markets have remained relatively phlegmatic in the teeth of a developing crisis in the Middle East but now analysts are sounding the alarm
Markets have, by and large, maintained their composure in the face of a 60% rise in the price of Brent in the last month. However, as the risks of escalation become more pronounced with each passing day of punitive bombing raids and retaliatory drone strikes, analysts are being forced to incorporate these risks into their forecasts.
JPMorgan's strategy team has just cut its year-end target for the S&P 500 SPX from 7500 to 7200 on the "geopolitical overhang" and oil and gas analysts including Jeff Currie at Carlyle Group are warning investors that assumptions for the oil price are too conservative and creating second and third-order effects that markets are not fully incorporating at present.
The JPMorgan team led by Dubravko Lakos-Bujas contends that each $10 increment in oil prices shaves 15-20 basis points from their GDP projection and lowers consensus forecasts for S&P 500 earnings by between 2% and 5%.
S&P 500 EPS sensitivity table based on GDP regression. Estimates for S&P 500 eps are around $315 according to FactSet
Interviewed on Bloomberg television Wednesday, Currie, chief strategy officer of Energy Pathways at The Carlyle Group, emphasized that he saw "substantial upside to oil prices" and a major dislocation between the financial and physical markets for oil. Currie referred to "molecular contagion" whereby the ripple effect of the closure of the Strait Of Hormuz is spreading out around the world. He noted the huge premium paid by Asian oil importers for Middle East oil grades like Oman and Dubai - as high as $170 per barrel - as supplies are choked off.
The point Currie was making was that markets seem not to comprehend the logistical difficulties involved in moving different types of oil around, and the disruption it causes. He also seemed to imply that the U.S. government had been trying to suppress the oil price disguised as a "mysterious seller" of 11 million barrels of oil last week. Currie judges the current supply shock as almost equal to the demand shock witnessed at the start of the pandemic.
Research on the European oil and gas sector published earlier in March by JPMorgan's oil and gas analysts Matthew Lofting and Tianyu Wu considered the effect on the European oil majors of a sustained period of elevated oil prices.
For example, on a pre-crisis Brent price of $60 per barrel Shell (NL:SHELL) was making earnings per share of $3.30 in 2026 and $3.86 in 2027. Plugging $90 into their model, though, the earnings per share jumps to $5.19 and $6.34 and its free cash flow yields almost double to 11.5% and 14.7%. BP (UK:BP), Eni (IT:ENI), Repsol (ES:REP) and OMV (AT:OMV) would see increases of a similar magnitude, as much as 50% in some instances. The JPMorgan rule of thumb is that for every $10 added onto the cost of a barrel, the European energy majors garner an additional two percentage points of free cash flow yield.
EU Oils FCF yield across $60-100/bbl Brent scenarios; $10/bbl change => 200bps
Speaking with MarketWatch on Thursday, Panmure Liberum's well-regarded director of oil and gas research Ashley Kelty outlined some of the repercussions for the oil companies themselves and the world economy, not fully appreciated yet by risk assets. If analysts factor an increase of say $10 from the antebellum price of around $70 to just $80 this could lift target prices across the European oil majors by at least 15%. Interestingly, he pointed out that while BP, TotalEnergies (FR:TTE) and Shell might be losing up to 15% of their production, locked inside the Strait, this is more than offset by the corresponding jump in profitability from higher prices from other fields of production.
European oil and gas companies stand to fare better than their American counterparts at present because of the significant premia attached to Brent, and Middle Eastern grades compared to West Texas Intermediate (CL00) . He noted oil companies with big trading divisions like Shell and Exxon (XOM) will exploit the increased volatility and price discrepancies and potentially make significant profits to boost their bottom line.
Total and Shell, Kelty added would, also benefit hugely from the cessation of Qatari liquified natural gas as they have major operations in other geographies that can now dominate the market.
Disconcertingly, Kelty believes markets are too complacent about the risks to other commodities like helium, in great demand from AI investment, data centers and semiconductor manufacturers, and urea used as fertilizer. Kelty is worried that with the onset of the summer planting season in the western hemisphere, the lack of fertilizer could reduce crop yields and lead to higher inflation going forward.
Kelty is also mindful of the risks to food supplies to the Middle East. "Yes, oil can't get out," he says, "but nor can food be shipped in." The threat to desalination plants posed by missiles or possible oil slicks should also not be underestimated. He can easily see how a humanitarian crisis might develop.
-Jules Rimmer
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(END) Dow Jones Newswires
March 19, 2026 07:40 ET (11:40 GMT)
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