Investors shouldn’t bother investing in blue-chip integrated oil firms at the moment, according to investment bank Jefferies, which highlights weakening refining margins in almost all key market territories.
Jefferies analyst Jason Gammel says demand growth, albeit at a slowing pace, and naturally declining production outside of OPEC should help bring the market for crude oil back into balance, but not until the second half of 2016.
The bank’s oil price forecast for 2016 currently stands at US$61, about a third higher than today’s prices.
Nevertheless, according to its analysts, that's not reason enough to buy the sector - not just now at least.
Gammel highlights a counter-seasonal rise in crude inventories during the fourth quarter and an increasingly strain on inventory capacity as issue that will keep pressure on the oil price.
“We believe a sustainable oil price recovery is going to be difficult before 2H16, and with no significant valuation driver see little reason to aggressively put new money to work in the sector,” he said in a note.
That said, he added that BG (LON:BG.) and Shell (LON:RDSB) - which are due to merge – are still ‘preferred’ stocks in the UK listed sector.
Chevron (NYSE:CVX) and Occidental Petroleum (NYSE:OXY), meanwhile, are his preferred names in the US market.