Deutsche Bank downgrades Shell, upgrades BP after oil-price plunge

Deutsche Bank has downgraded its rating for Shell but upgraded BP as part of its review of the oil sector in light of the recent plunge in crude prices, now trading at their lowest levels in five years.

“With the commodity down by some 45% and the sector’s dividend yield moving towards 6% the temptation might be to start to build holdings,” said analysts Lucas Herrmann and Mark Bloomfield.

“Yet, whilst the bulk of the damage to sector share prices may now be done, where we struggle is to see quite what it is that drives them north particularly through the opening months of 2015.”

The analysts said that those prepared to take a long-term approach may fare well, but early-2015 is “unlikely to prove especially kind to the sector”.

This will especially be the case if global growth starts to accelerate and stock markets advance, supported by the impetus of the collapse of oil, they said.

The bank has now cut its forecast for Brent crude to just $72.50 barrel in 2015, down 18% from its previous estimate of $88.75. It also lowered its 2016 and 2017 predictions to $77 and $84 respectively.

Deutsche Bank has named BP (upgraded from ‘hold’ to ‘buy’), BG Group (‘buy’) and French peer Total (‘buy’) as its preferred stocks in the European oil sector.

“In a sector where all are under pressure there are no easy calls. Our bias is towards those that offer improved cash flow visibility, project momentum and/or have the potential for the material change," Herrmann and Bloomfield said.

As for Shell, they lowered their rating from ‘buy’ to ‘hold’, saying that while the company is a “core holding” in the sector, they do not see material upside.

Shell was trading down 0.7% on Wednesday morning, while BP fell a lesser 0.1%.