Oil Market Not Improving As Quickly As Expected, Analyst Cuts Price Outlook

Societe Generale has become the latest firm to throw in the towel on a 2017 oil market recovery. On Wednesday, the firm lowered its crude oil price targets and income outlook for the oil companies it covers.

Analyst Irene Himona cut her 2017 price forecast for Brent crude oil from $55/bbl to $50/bbl. In addition, she cut her 2018/2019 price forecasts from $60/$65 to $50/$52.

“Global oil markets have not rebalanced as quickly as expected and inventories remain at record levels; growth in US domestic oil supply may be calming down in the face of some capacity constraints, but growth to date has been nearly twice original expectations,” Himona wrote.

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She also reduced sector-wide income estimates by 18.4 percent in 2017, 29 percent in 2018 and 30.6 percent in 2019.

For investors, oil-price-leveraged stocks such as Statoil ASA(ADR) STO, BP plc (ADR) BP and Eni SpA (ADR) E received the biggest earnings estimate cuts.

In light of the new forecast and earnings outlook, Societe Generale has downgraded BP from Buy to Hold.

Still, Himona sees pockets of opportunities for selective investors in an extended $50/bbl oil environment. Companies with more exposure to downstream operations, such as chemicals and refining, could get a margin boost from lower oil prices. In addition, even if oil prices will not be a catalyst for another several years, spending cuts could drive earnings upside in the near-term.

Societe General maintains a Buy rating on top pick Total SA (ADR) TOT, as well as Royal Dutch Shell plc (ADR) (NYSE: RDS-A) (NYSE: RDS-B) and Eni.