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Investing.com -- JPMorgan upgraded BP (NYSE:BP) to Neutral and downgraded OMV to Underweight in a note Thursday, citing shifting European gas dynamics and the potential financial impact of a Russia-Ukraine ceasefire.
“We neutralise BP (u/g from UW) as outsized Rosneft option value mitigates cash cycle tensions and double d/g OMV to UW following a recent petchem hedge inspired rally,” JPMorgan analysts wrote in a note.
The firm noted that market sentiment has shifted from questioning if Russian pipeline gas will return to Europe to when it might resume.
However, logistical, legal, and commercial hurdles could delay a significant increase in supply. “An imminent and meaningful resumption of flows appears far from straightforward,” JPMorgan cautioned.
JPMorgan assessed the earnings impact of potential Russian gas flows, forecasting that a 15 billion cubic meter (bcm) annual increase would push TTF gas prices to €40 per megawatt-hour in 2025 and €27 in 2026. A more aggressive 40 bcm scenario could lower prices to €35 in 2025 and €20 in 2026.
BP is said to emerge as a key beneficiary of any geopolitical resolution, thanks to its 19.75% stake in Rosneft, which JPMorgan estimates could represent up to 20% of BP’s market cap if fully monetized.
“Rosneft optionality makes BP a prime ceasefire beneficiary. This presents a deleveraging ‘silver bullet’ which mitigates previously analyzed cash cycle tensions,” JPMorgan noted.
Meanwhile, OMV’s recent rally, driven by petrochemical hedges, has left its valuation stretched.
“We downgrade OMV following recent outperformance … and a narrowed <10% 2025e PE discount; an M&A overhang further limits scope for a continued re-rating,” JPMorgan wrote.
JPMorgan raised BP’s price target to 510p, while OMV’s was set at €40, implying a potential 2% downside.