THE European integrated oil sector is entering a sharper and longer downturn than either the oil or equity markets imply, according to Barclays Capital, which has started its coverage of the sector with a negative view.
It would be 2012 or later before decline rates, lower capacity and recovering demand led to a tight oil market, the brokerage said in a note to clients. Barclays Capital said this year would see the biggest fall yet in oil company earnings if Brent oil prices stayed at $40 per barrel, which it believes will happen in 2009 and 2010.
“This will take earnings back to roughly the same level as in 2002, when oil prices averaged $25 a barrel,” Barclays Capital said, while cutting its 2009 earnings forecasts for oil companies by an average 60% compared with 2008. The brokerage rated BP and Royal Dutch Shell as underweight, saying the market had not priced in the risk of a probable fall in 2009 earnings.