The retreat of the war premium does not mean the end of the energy bull market. Oil and gas giants are switching their bullish logic from geopolitical panic to fundamental repair.

Although the recent crude oil futures prices have dropped significantly due to the consensus of a peace agreement between the US and Iran, Exxon Mobil Corporation (XOM.US), the oil and gas giant in the US, saw little change in its stock trading on Tuesday and closed up 0.67% by the end of Tuesday. This was mainly because the Wall Street financial giant Bank of America Corp upgraded the stock rating from "neutral" to "buy" with a target price of $154. According to the analysts at Bank of America Corp, the stock has been experiencing a correction since mid-May, and its valuation now reflects a much lower pricing level based on long-term Brent crude oil prices around $65 per barrel compared to the current levels, with limited downside potential for Exxon Mobil Corporation. It is understood that the US and Iran are about to formally sign a memorandum of understanding with 14 points to permanently end the conflict between the two parties. This temporary peace agreement will immediately lift the blockade on Iranian oil exports and facilitate the reopening of the Strait of Hormuz, which accounts for 20% of global energy trade flows, paving the way for final nuclear agreement negotiations in the next 60 days. On Tuesday, Brent crude oil futures for August closed down by $4.21, a decrease of 5.06%, at $78.96 per barrel, falling below the $80 per barrel mark for the first time in over three months. Brent has been falling for the fourth consecutive trading day since June 11, marking the longest continuous decline this year. Trump announced that the Strait of Hormuz would reopen this Friday, and it is expected that the US and Iran will sign a temporary agreement memorandum in Switzerland at that time, although the full agreement has not been disclosed. Additionally, both Morgan Stanley and Goldman Sachs Group, Inc. have lowered their oil price forecasts for the coming quarters. In its latest revision, Goldman Sachs Group, Inc. believes that Persian Gulf oil exports will return to pre-war levels by the end of July, a month earlier than previously estimated. With oil prices falling to their lowest levels since early March, they have basically retraced all the gains made during the GEO Group Inc conflict period. As the Federal Reserve held its interest rate policy meeting this week, this has undoubtedly alleviated inflation pressure. However, there are still many uncertainties surrounding the implementation of this temporary agreement, with doubts from various parties in the market about the safety of maritime navigation and the clarity of transit regulations, as well as the uncertainty of whether this vital chokepoint that handles about one-fifth of global crude oil transport volume can maintain its zero transit fee policy. Compared to Morgan Stanley and Goldman Sachs Group, Inc., Royal Bank of Canada Capital Markets is more cautious about the energy trade flow through the Strait of Hormuz. The analyst team at RBC led by Helima Croft cited benchmark data from February 27 before the GEO Group Inc conflict erupted, stating, "We believe that it will take several months for the oil capacity to recover to close to pre-war levels, and the peak oil transport volume through the Strait of Hormuz may have already become a thing of the past." The sharp drop in oil prices does not hide expectations of value recovery, and Bank of America has upgraded Exxon Mobil Corporation's rating to "buy" amidst falling oil prices. Led by analyst team led by Jean Ann Salisbury, Bank of America stated that Exxon Mobil Corporation's strong execution in the Permian Basin gives it a clearer long-term growth trajectory compared to its peers. "Even with short-term oil price declines, the company will benefit significantly from the reopening of the Strait of Hormuz, including the potential for substantial increase in annualized free cash flow of around $3.3 billion when Brent crude oil is at $70 per barrel, as 20% of its production comes from the Middle East, with a majority of it previously shut down," said the Bank of America analyst team. The Bank of America also expects Exxon Mobil Corporation's fully integrated business portfolio to become more prominent in a world of increased market volatility post-conflict; with more countries seeking to open up and intensify efforts to develop oil and gas field assets, the uncertainty in the Middle East may give the company a stronger negotiating position for future energy assets in Qatar and other Middle Eastern countries. Bank of America states that Exxon Mobil Corporation also has a leading downstream business and exposure to renewable energy businesses, which are likely to drive the company towards stronger growth in the next few decades under the impetus of strong demand for AI infrastructure construction and low-carbon energy. Will traditional energy giants like Exxon Mobil Corporation, Chevron Corporation, and Occidental Petroleum Corporation see cash flow repricing? The peace agreement between the US and Iran has pushed Brent crude oil prices below $80, and the market is now assessing the recovery of oil flow after the reopening of the Strait of Hormuz. However, complete resumption of navigation and production may still take several weeks or even months; this means that the short-term war premium on oil prices has been squeezed out, but traditional oil and gas stocks do not necessarily lose their investment value in sync, as transportation, insurance, port operations, capacity restarts, and inventory replenishment will support the mid-term oil price fluctuations. For the growth prospects of these energy giants, this also means that companies like Exxon Mobil Corporation, Chevron Corporation, and Occidental Petroleum Corporation still have substantial upside potential. However, the logic of the rise has shifted from the "oil price impact premium due to the Hormuz blockade" to "undervaluation repair after the oil price fall, recovery of free cash flow growth trajectory, and repricing of risks related to GEO Group Inc". Among the three companies, Exxon Mobil Corporation has the highest level of certainty. The Bank of America analyst team upgraded Exxon Mobil Corporation's rating from "neutral" to "buy" with a target price of $154, as the recent decline in stock price has already implied a long-term Brent oil price of around $65 per barrel, with limited downside potential; Bank of America also believes that if Brent is at $70 per barrel, the reopening of the Strait of Hormuz could increase Exxon's annual free cash flow by about $3.3 billion, as around 20% of its production comes from the Middle East and most of it was previously shut down. Based on the latest closing price of $141.86, the Bank of America's target price of $154 corresponds to a potential upside of about 10%; according to MarketBeat's average target price of $165.70 and the highest bullish target price of $185 by Wall Street analysts, this corresponds to a more robust potential upside of about 16.8% and 30.4% respectively. This further indicates that Exxon is more like a defensive energy leader with "undervaluation + high-quality integration + production expectation in the Middle East" rather than a high-beta bet on another surge in oil prices.