Petroleum storage tanks at the BP Indiana Tank Field are seen behind a security gate on April 21, 2020, in Whiting, Ind.
Associated PressFor all the headlines about negative oil prices, it sure is an odd time for European oil producers to rally.
Yet, they have. Over the last month, the Stoxx Europe Total Market Oil & Gas Producers index has surged some 29%, according to FactSet data.
Analysts at JPMorgan Cazenove say they are hearing strong interest from the investors they talk to.
“Record investor appetite to engage with us on oil suggests it is not if but when underweight positions begin to be neutralized,” they say in a note to clients.
Key to the investor interest is the idea that crude prices can’t stay this low forever without producers drastically cutting output.
“Most investors we speak with believe prevailing oil prices aren’t sustainable. Moreover, our conversations often segue into the extent to which both global oil supply and demand should ‘self-correct’ into a new equilibrium and the prospect of a healthier oil market and a new upcycle from 2022 if demand recovers and supply rolls over,” they say.
Long-only investors and even some staunch bears are acknowledging the risk/reward for oil stocks is more attractive at current valuations.
Not that the risks aren’t severe, with dividend cuts being potentially in the offing. And the year-to-date price change is still a dismal -36%.
The stocks the analysts like are Total, BP, Equinor and Galp. “We expect continued positive decoupling from a transitory price trough and retain a positive risk/reward view on best placed overweights that combine short-term resilience with medium-term supercycle leverage,” they say.
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April 24, 2020 at 07:09PM
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A Funny Thing Is Happening to Europe’s Oil Producers as Prices Have Sputtered — They’re Rallying - Barron's
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