Barclays has downgraded its outlook on APA Corporation (NASDAQ:APA) and CNX Resources in response to revised lower oil and natural gas price projections. The bank reduced its Henry Hub natural gas price forecasts to $3.65 per MMBtu for 2026 and $4.00 per MMBtu for 2027, down from prior estimates of $4.25. Additionally, the 2026 West Texas Intermediate (WTI) oil price projection was trimmed to $61 per barrel from $63.
Despite the resilience of the U.S. upstream cash return model amid macroeconomic volatility, Barclays adopts a more selective stance due to short-term uncertainty in commodity prices. The bank notes persistent concerns about a potential global oil supply overhang, although recent inventory increases have been less severe than anticipated. Oil markets continue to grapple with a geopolitical premium, which adds an element of unpredictability.
Natural gas momentum, which had seen strong growth over the past two years, has moderated as production growth outside traditional core basins has loosened the balance between supply and demand. This trend persists despite recent cold weather leading to temporary price spikes. Conversely, the drawdown of OPEC spare capacity provides structural support for oil prices, complemented by visible demand growth in natural gas driven by LNG exports and power generation. These dynamics are expected to contribute to price volatility that favors producers with low-cost operations.
In this pricing environment, Barclays downgraded APA Corporation to Underweight. The investment bank views APA's valuation as less compelling currently. The Permian Basin assets held by APA are projected to generate a free cash flow yield near 3.8% in 2026 at current strip prices, offering a premium compared to larger onshore competitors. However, the bank expects APA's gas marketing gains—substantial contributors to free cash flow in 2024 and 2025—to contract as Permian takeaway constraints ease and global LNG prices soften relative to U.S. prices.
Similarly, CNX Resources received an Underweight rating. Barclays attributes the stock's recent share price gains to optimism regarding the company's potential in the deep Utica shale formation and its hedged gas position. Nonetheless, CNX now trades in line with its peers on free cash flow yield despite having a shorter inventory life, with the existing market pricing in potential upside from the deep Utica assets.
Occidental Petroleum was reinstated to an Equal Weight rating following the completion of the OxyChem divestiture. Barclays notes that the divestment facilitates accelerated debt reduction in the wake of the CrownRock acquisition but simultaneously removes a business unit that previously helped stabilize cash flow through commodity price cycles. While lower debt levels should support share buybacks, cash returns are expected to remain constrained until preferred share redemptions commence in 2029.
Barclays' latest revisions underscore a cautious approach toward oil and gas equities amid evolving supply-demand balances, geopolitical uncertainties, and shifting commodity prices. Investors are advised to consider the potential for ongoing volatility and structural changes in regional production when evaluating exposure to these energy sectors.
Barclays has adjusted downward its forecasts for oil and natural gas prices for 2026 and 2027, resulting in the downgrades of APA Corporation and CNX Resources to Underweight. The firm highlights ongoing concerns about global supply overhang in oil markets, easing gas momentum due to supply increases outside core US basins, and geopolitical factors creating price volatility. Meanwhile, Occidental Petroleum is reinstated to Equal Weight following a strategic divestiture that supports debt reduction but removes a cash flow stabilizer.
Key Points
- Barclays lowers 2026-2027 oil and natural gas price forecasts due to supply and geopolitical uncertainties.
- APA Corporation and CNX Resources downgraded to Underweight as valuation and growth prospects become less favorable.
- Occidental Petroleum reinstated to Equal Weight after divesting OxyChem, aiding debt reduction but reducing cash flow stability.
Risks
- Potential global oil supply overhang could depress prices further affecting upstream producers and energy equities.
- Geopolitical premiums add uncertainty to oil price forecast, introducing volatility in energy markets.
- Easing natural gas momentum due to increased production outside core US basins may pressure gas prices and related company cash flows.