Barclays Upgrades Eni, Repsol; Updates Oil Price Assumptions

Barclays’ Lydia Rainforth mentioned that Brent oil prices in the beginning of 2016 are at their lowest starting point in 12 years. She added that the tough scenario in the oil industry had brought into focus the need for cost discipline, addressing operational inefficiencies, bloated budgets and poor capital allocation that have eroded returns in recent years.

The progress on the operational front, an expected recovery in the oil price with a decline in supply from non-OPEC countries and low stock valuations signal positive share performances in the near future, analyst Lydia Rainforth stated.

Rainforth upgraded the rating for Repsol SA (ADR) REPYY to Overweight, with a price target of €15, reflecting the share price performance in recent months.

The analyst also upgraded the rating for Eni SpA (ADR) E from Underweight to Equal-weight, saying that the company’s shares were trading at close to four-year lows relative to the sector.

Barclays reduced its 2016 Brent price assumption from $60 per barrel to $42.5 per barrel, to reflect a volatile year-to-date average of $32 per barrel.

“The combination of decline rates and the delays in developments over the past 15 months does in our view make some form of recovery inevitable and we still see there being a reasonable probability of our previous $85/bl long-run assumption being reached,” Rainforth wrote.