Citi has identified BP PLC (LSE:BP.) and Shell PLC (LSE:SHEL, NYSE:SHEL) as its top short-term picks in the oil sector, citing the potential for a rebound driven by rising demand, particularly from China's economic stimulus.
While global energy stocks have underperformed in 2024 due to oversupply, the American investment bank believes both UK super-majors are poised to benefit from improved market conditions in the coming months.
According to Citi’s recent analysis, oil prices are being discounted at around $70 per barrel. However, if prices were to fall to $60, free cash flow (FCF) yields could shrink, forcing energy companies to make tough financial decisions.
Despite this, Citi remains optimistic about BP and Shell, suggesting that they could see a positive short-term boost as oil demand strengthens.
Citi also warns that excess global supply may continue into 2025, putting pressure on oil prices.
OPEC+, the group of oil-producing nations, is expected to continue defending oil prices, but the risk of further oversupply remains.
In afternoon trading BP's share price was up 2.5% at 411p, while Shell was ahead 2.6% at 2,542p.