What just happened? Prior to the 9 November Pfizer/BioNTech vaccine newsflow, the shares of the major oils were down an average of 49% YTD. Since then, they are up by

an average of 35%. We believe much of this surge was driven by short covering and quant-driven buying, but it leaves the question of whether this is the start of a longer period of recovery in their performance or not. We see a couple of encouraging signs:

Consensus estimates look like they are finally turning upwards after their sharp fall in 2Q and further slow decline thereafter. Growing confidence in crude pricesadds to a recent recovery in gas prices and refining margins from their lows

Crude prices are now at levels where most companies should be free cash positive, given average organic breakevens in the mid-USD40/b’s for 2021e However, this has to be set against valuations which (unsurprisingly after such a move) have become much less compelling. We raise our target prices by an average of 23% after reappraising where we think sector cash flow and dividend yield valuations could go on a 6-12 month view, but this leaves us with only 7% average upside to our targets.