JPMorgan ups BP to 'neutral' but stays cautious on integrated oil sector

Following recent outperformance, it recommended investors to sell shares in the sector "which will fade if the oil-price momentum weakens".

As for BP, the broker said its sees a more favourable Russian risk setting and pathway for the group to cash-flow neutrality in 2017 at $65 a barrel.

As part of the upgrade, it raised its target price for the shares from 410p to 450p.

As for the sector as a whole, JPMorgan said the it is getting a clearer picture of the new oil-price regime. Oil-price discovery is occurring between the bottom and top of the current price cycle, with West Texas Intermediate (WTI) trading between $44 and $60 a barrel, it said.

"We sense that we may be close to the first apex in our W-price formation defined by the level when US shale oil drilling and completion activity starts to pick up following a seven-eight month decline," the broker said.

As such, analyst reckon that WTI rather than Brent crude will remain the pivotal oil benchmark for marginal non-OPEC oil supply formation.

"We believe that European sector equity valuations, which have risen with the oil price, will suffer once this oil price apex is defined (as falling costs meet rising prices) since it may extinguish price upside expectations and underline a lower free cash flow and ROACE outlook, so reinforcing doubts over dividend sustainability for the big dividend obligates in Europe."

BP was trading 0.25% higher at 459.15p by 10:39.