Barclays reiterates overweight stance on BP and Shell

Analysts at Barclays reiterated their 'overweight' recommendation for shares of BP and Royal Dutch Shell (target price: 2,750p), telling clients that the pair's cash break-even levels were set to fall further.

Indeed, despite the integrated oil sector's 11% underperformance versus the market year-to-date, sector earnings were seen growing by 60% year-on-year and 11% quarter-on-quarter over the latest three month stretch, helped in part by the resilience of their refining operations, they said.

In particular, they expected BP to commit to delivering the equivalent of a full cash dividend in 2018, naming it their 'top pick' and sticking with their target price of 675p.

At the sector level, the cash break-even level for the price of oil - the level needed to cover capex and a full cash dividend - was seen dropping by four dollars in the third quarter to $52 a barrel.

For BP the cash break-even level was expected to fall by $10 to $54 a barrel, against a rolling 12-month level of $72.

The cash break-even level also assumed no changes to working capital nor actions on the portfolio, the analysts explained.

Within the same report, Barclays also upgraded its recommendation on Neste from 'underweight' to 'equalweight', while downgrading Saras from 'equalweight' to 'underweight'.

Barclays's target price on Neste was upped from €33.0 to €41.0 and that for Saras from €2.0 to €2.20.