􀀗 We downgraded our 2009e Brent
assumption to USD50 from USD75.
Longer term we see accelerating decline
rates tightening the market and we
upgraded our 2010e assumption to
USD75 from USD60
􀀗 We continue to believe that the oil
sector looks undervalued on PE relative
grounds and offers an attractive yield
backed by strong balance sheets
􀀗 Of the majors, BP (OW: TP 685p) and
ENI (OW: TP EUR27 from EUR28) offer
the most potential return to our target
prices. We change ratings on two
stocks and targets on nine stocks
Tightening crude market ahead?
OPEC’s cutbacks have proved larger than we expected,
down nearly 3MMbbl/d since September. In the medium-tolong
term, we expect decline rates in non-OPEC to
accelerate due to reduced maintenance spend. With projects
being deferred due to weak prices and the credit squeeze, we
see a risk of a significantly tighter market at some stage
during the next decade. In our note “Global oil price:
Looking for the bright side” 28 February 2009, we
downgraded our 2009e Brent forecast to USD50 (USD75)
but upgraded our 2010e forecast to USD75 (USD60).
Sector attractive on yield and PE grounds
The Europe oil sector relative appears to have decoupled
from the oil price and is towards the top end of its 20-year
range. However the sector is looking attractive on PE
relative and equity:bond yield ratio grounds.
ENI and BP: High yields offering high potential returns
Amongst the majors, ENI and BP offer the highest potential
returns to our target prices. We have Overweight ratings on
BP (TP: 685p) and ENI (TP: EUR27 from EUR28) and see
their 8% yields as providing defensive support. We upgrade
OMV and Venture Production to Overweight (V) (Neutral
(V)) but see both as relatively high risk investments. We
adjust target prices on nine stocks.