Fundamental conditions in the oil market are continuing to improve, that is the key takeaway of research by investment banking firm Jefferies and quoted by Rigzone.
Although oil and gas analysts at the organization conceded that the industry is ‘not out of the woods’ just yet, they pointed to a number of positive trends that have been helping the sector.
“Demand growth has been strong; OPEC conformity with production targets has been good and an extension seems likely; and we believe that US production growth could under-deliver in 2018,” analysts at Jefferies said in the research note.
The analysts also predicted that if OPEC/non-OPEC production cuts are extended through the end of 2018, the oil market would remain in ‘modest under-supply’ until 2019. Jefferies’ ‘top picks’ in the integrated oil sector were also revealed as Chevron Corporation and Royal Dutch Shell plc.
“We estimate Chevron’s break-even price will drop to $44 per barrel in 2018 as its high-margin production in Australia and the Permian Basin continues to ramp up. We expect production growth to reach 10 percent in 2018, and see ample capacity for a progressive dividend,” Jefferies analysts said.
Shell is believed to have the most ‘resilient’ cash flow profile in the European integrated oil sector, according to Jefferies analysts, yet the stock’s dividend yield ‘remains the highest in the peer group’.
“With Shell now establishing another quarter of robust cash flows, market attention will now shift to the company’s capital markets updates on November 28,” analysts said.
Earlier this month, Shell posted an earnings boost of almost 50 percent in the third quarter.