High Grade E&P Quarterly: Record tight E&P spreads justified by higher for longer oil price backdrop

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High Grade E&P Quarterly: Record tight E&P spreads justified by higher for longer oil price backdrop

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High Grade E&P Quarterly

Record tight E&P spreads justified by

higher for longer oil price backdrop

Rating Change - Credit

Oil macro justifies record tight E&P spreads 27 May 2026 Corrected

Overall, we have a constructive outlook on E&P fundamentals going forward, supported High Grade Credit

by improving credit metrics, robust FCF generation, and sustained capital and production United States

discipline. The ongoing elevated oil price environment (due to the Iran conflict) has been Energy, MLPs & Pipelines

a massive tailwind for E&Ps to date, and we think there is further upside to Daniel Lungo

fundamentals if the conflict persists. At the same time, ratings agency momentum has Research Analyst

turned increasingly positive, with several positive actions across HG E&P since March BofAS+1 646 855 9965

reflecting stronger fundamentals and ongoing deleveraging actions. While stronger oil daniel.e.lungo@bofa.com

prices driving improved E&P performance is not a novel concept and helps explain why Gavin Andersen

Research Analyst

the Energy Index is trading near all-time tights versus the Corp Index, we believe the BofAS

current backdrop is differentiated by a higher price floor through 2026 (driven by supply gavin.andersen@bofa.com

losses to date) and a clear validation of geopolitical risk, reinforcing the sector’s Peter Merlini

defensive characteristics. As a result, while spreads appear tight on a historical basis, we BofAS

believe current levels are justified and should remain supported going forward. Even in a peter.merlini@bofa.com

scenario where oil prices normalize lower in the near term, we expect core fundamentals