Barclays reiterates 'overweight' on BP, Royal Dutch Shell

Analysts at Barclays expect that shares of the European oil majors will re-rate as more evidence emerges going into year-end and the start of 2018 that the oil industry has 're-set' in order to be able operate in a $50 a barrel of oil environment.

Indeed, in their opinion companies had already done so, despite which investor positioning in the sector was essentially unchanged in September.

That was also despite a "rally" in the macroeconomic environment.

This was the main finding of the bottom-up analysis conducted by their European equity strategy team of fund filings, with both global and European active funds found to be 'underweight' the sector.

Investors also seemed to be ignoring the fact that the energy sector was offering near to the fattest premium on dividends to the market in over 30 years.

Barclays also believed the more favourable landscape for integrated oil companies would lead several to remove their dilutive scrip programmes in 2018.

For all of the above reasons, the analysts reiterated their 'overweight' stance for BP and Royal Dutch Shell - naming the former as its 'top pick' - and their respective target prices of 675p and 2,850p.

"In a flat oil price environment we believe that the group can grow financial and shareholder returns as well as production at least out to the end of the decade. [...] If the stocks do not re-rate against this backdrop, they may never do so."