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Royal Dutch Shell, BP downgraded as leading broker turns bearish on the oil price

Aussie broker Macquarie sees Brent averaging just over US$54 in the second-half, then US$49.33 and US$52.75 a barrel for 2018 and ’19 respectively

Are we in a bear market now? One commentator seems to think so

Macquarie has made a raft of downgrades, with BP PLC (LON:BP) and Royal Dutch Shell PLC (LON:RDSA) among them, after becoming more bearish on the oil price.

As the cost of a barrel of Brent crude hit a nine-month low of around US$46, so the Aussie broker took out the red pen.

It sees Brent averaging just over US$54 in the second-half (down from almost US$59), then US$49.33 and US$52.75 a barrel for 2018 and ’19 respectively.

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Longer term it expects the price to average US$65 a barrel (down from US$70).

While it expects demand for the ‘blacks stuff’ to hold up, the problem is one of supply – or over-supply to be precise.

Feeding these assumptions into the Macquarie spreadsheet has come up with a rather depressing analysis of integrated oil and gas sector – home to the majors.

Its analysts have reduced their per share earnings and cash flow estimates by 7% and 4% respectively for this year – which doesn’t appear to be a major drama.

Going forward the cuts are deeper – 24% and 9% (for 2018 EPS and cash flow) and 26% and 10% (for 2019).

On that basis only French giant Total SA (EPA:FP) and Portugal’s Galp Energia SGPS SA (ELI:GALP) remain on an ‘outperform’ rating.

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It is negative or neutral on the other large European integrated stocks.

In BP’s case it has moved to ‘underperform’ from ‘neutral’ and has gone to a ‘neutral’ from an ‘outperform’ recommendation on Royal Dutch Shell.

Moving to the North Sea explorers, the picture is equally depressing.

While Macquarie remains bullish on Cairn Energy PLC (LON:CNE) it is a ‘seller’ of Premier Oil PLC (LON:PMO) and Enquest PLC (LON:ENQ). Services company Soco is downgraded to ‘underperform’ on “lack of organic growth potential”.

Finally, Macquarie remains positive on Tullow Oil plc (LON:TLW) and Africa Oil Corp (LON:AOI). 

Quick facts: Royal Dutch Shell

Price: 30.84 USD

Market: NYSE
Market Cap: $120.39 billion

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