JP Morgan analysts have downgraded Royal Dutch Shell Plc (LON:RDSB) to ‘neutral’ as they believe it is the most vulnerable to the market’s demand risks among the ‘big oil’ firms.
Looking at the sector turmoil, analyst Christyan Malek said: “We expect the OPEC+ breakdown to cause extreme oil volatility but depressed prices to prove short lived.
“Demand weakness will affect the entire complex if COVID-19 persists, but we believe oil offers the ‘cleanest’ risk/reward on tightening MT fundamentals.”
READ: Shell can defend dividend says UBS
UBS earlier this week claimed Shell will be able to defend the dividend through the current period of “cyclical weakness” having spoken the oil giant's investor team in the wake of Monday’s plunge in the oil price.
In a pre-arranged meeting, Shell’s team said there was around US$4bn flexibility in the company’s sustaining capital expenditure (capex), which means it is cash neutral into the “US$40s” a barrel oil price range. That’s still well above the current Brent spot price of just over U$$37 a barrel.
However, the Swiss bank reckons “modest disposal activity and some balance sheet capacity” will help defend the Shell dividend.
“Respecting and sustaining the dividend in cash and not reverting to scrip is an important input into the quality of the payout, in our view,” UBS added.
Shell and its UK rival BP (LON:BP.) saw their share prices shattered on Monday after the Saudi Arabia-led OPEC cartel started flooding the market with cheap oil.
It followed a stand-off with Russia, which refused to cut production in order to get the price up.