JP Morgan adds Tullow Oil to Analyst Focus List

European oil exploration and production companies bore the most collateral damage from last year's "devastating" market share battle between the world's two top producers, but better times might lie ahead, JP Morgan said, if the oil market began to rebalance.

The tussle between the US and Saudi Arabia left the sector on a financial precipice, the broker said.

Should the price of oil stays permanently low (under $50 per barrel) that could see debt covenants breached and lenders forced to reign in their liquidity, which could spark so-called 'forced' asset sales, JP Morgan said in a research report sent to clients.

Under a more benign scenario, the oil market begins to balance - as may be indicated by forward looking supply and demand estimates - so that lower capital commitments and increasing production "dovetail into a more supportive price setting," it went on to explain.

Volatility was also creating "departures from reasonable valuations", analyst James Thompson said, unearthing some interesting trading opportunities.

More specifically, after delivering in its major projects and outperforming the sector last year, shares in Lundin Petroleum now had less scope to continue advancing.

Hence, JP Morgan downgraded the shares to 'neutral'.

Tullow Oil on the other hand offered "material" upside potential for investors in 2016, thanks to the recent value compression in the stock and its differentiated catalysts, leading Thompson to add it to the broker's Analyst Focus List.

Despite the above, the analyst lowered his target price on the shares of the Africa-focused oil explorer from 310p to 295p.