Investing.com -- JP Morgan upgraded Range Resources (NYSE: RRC ) to "Neutral" from "Underweight" and downgraded Vermilion Energy (NYSE: VET ) to "Underweight" from "Overweight," given their valuations.

The Q4 earnings highlighted the ability of exploration and production firms to enhance drilling and completion efficiency, resulting in improved capital efficiency through faster cycle times and lower expenditures.

Brokerage expects the oil market to shift from balance in 2024 to a surplus of 1.3 million barrels per day (MMBo/d) in 2025, driven by record U.S. oil production, the return of OPEC+ supply in April, and trade risks from tariffs. These factors could push oil prices lower to eliminate higher-cost production from the market.

JP Morgan updated its estimates for 2025-2026, with its oil coverage EBITDA projections 2% and 10% below consensus, while its natural gas coverage estimates are 18% and 7% above consensus. The firm noted that natural gas stocks are trading at free cash flow yields of 12% and 13% for 2025-2026, compared with 13% and 10% for large-cap oil-focused firms.

Whereas JPMorgan continues to favor natural gas equities, citing three key demand drivers: an expected 11 billion cubic feet per day (Bcf/d) increase in LNG export capacity by 2030, growing power demand from electrification, and coal-to-gas switching.

Since early December, the 2025-2026 oil strip has declined by about $0.99 and $1.55 per barrel to $65.79 and $63.35 per barrel, while NYMEX natural gas futures for the same period have risen 38% and 16% to $4.50 and $4.38 per MMBtu.

Over this period, natural gas stocks have outperformed oil stocks by 16%, though JPMorgan believes this does not fully reflect the favorable move in the long-term gas price outlook.

The firm reiterated "Overweight" ratings on Antero Resources (NYSE: AR ), EQT Corp (NYSE: EQT ), and Excelerate Energy as top gas picks.

For oil, its top selections remain ConocoPhillips (NYSE: COP ), Coterra Energy (NYSE: CTRA ), and Permian Resources.