Deutsche Bank Cuts FY15 Oil Sector EPS View 28%

WIth oil prices unlikely to see a near-term rebound, an analyst cut his 2015 profit estimates for the sector by an average of 28 percent.

Deutsche Bank's Lucas Herrmann said Saudia Arabia may seek to starve U.S. onshore oil production by keeping prices low for an extended period.

At the same time, Herrmann upgraded BP plc BP to Buy, from Hold, and downgraded Royal Dutch Shell plc (NYSE: RDS-A) to Hold, from Buy.

With a 40 percent drop in oil prices in recent months, "the bulk of the damage to the sector is now done," Herrmann said in a note. "But it's hard to see what's going to drive share prices higher."

Despite oil price woes, dividends in the sector next year are probably safe, as cuts in capital spending will offset slowing cash flow, Herrmann said.

Among exceptions to the glum outlook, Herrmann upgraded BP, citing the likelihood that its troubles in the Gulf of Mexico and Russia will see a turning point in 2015.

In January the penalty phase begins in BP's trial over the 2010 Gulf oil spill. The company has already paid out a reported $28 billion in clean-up costs and fines could run as much as $18 billion.

But Herrmann expects speculation will switch from "how big to how much less," regarding the upcoming penalty.

Further, Hermann speculated that BP could exit its troubled $13 billion investment in Russia's state oil company Rosneft in 2015. "Positive moves here could have an upward impact on BP's share price," Herrmann said.

Herrmann also maintained Buy ratings of Total SA TOT citing its cash flow and BG Group plc, which trades on the London exchange and is expected to launch 2015 start-up projects in Brazil, Norway and Australia.

Royal Dutch Shell got a downgrade to Hold, from Buy. "Nothing to dislike; it's all solid, long-term stuff," Herrmann said, adding that Shell's stock price is unlikely to rise during the next 12 months.

Herrmann also maintained Hold ratings on Repsol SA REPYY citing valuation and OMV AG OMVKY, where Herrmann sees a risk to its dividend.