Oil stocks shine on fresh bid hopes

Bid speculation returned to the oil sector on Tuesday, after analysis from Citigroup helped stoke hopes for further dealmaking.

The broker drew attention to the outlook for tighter supply, saying the current Brent crude price was "too low to incentivise future supply needs" and that its slide since June "risks stranding up to 40 per cent of the industry's current investment cycle".

Alistair Syme, Citi analyst, predicted that oil prices would recover to the $60 to $70 dollars a barrel level and said: "Royal Dutch Shell's acquisition of BG serves as a timely reminder that competitive assets should be valued at a premium at this point in the cycle."

Citi lifted its rating on Tullow Oil, one of the main casualties of the collapse in oil stocks in the second half of 2014, to "buy" from "neutral", helping it rise 7.3 per cent to 364.3p and the top of the FTSE 250.

Citi said Tullow's "Attractive portfolio qualities remain discounted", adding: "Tullow's growth looks discounted versus global peers."

Augustin Eden, research analyst at Accendo Markets, said: "Tullow Oil does look well placed for a bid according to its fundamentals, including a price-to-earnings growth ratio of 0.2, and its current share price, down 60 per cent in the past 12 months, making the stock a potential bargain with great return prospects."

In the wider sector, Premier Oil was up 3.2 per cent at 160.2p. Weir Group, the oilfield services company, rose 1 per cent to £18.07.

But the rally did not reach the majors, with Shell's move on BG seen as likely to remain the main outcome of any further round of consolidation. Shell's "B" shares, the more widely held of its stock, rose 0.6 per cent to £20.77.

BP fell 0.3 per cent to 469.6p after Citi cut its rating on the stock from "buy" to "neutral", saying "the market now better reflects the inherent value in BP".

Overall, the FTSE 100 was flat at 7,063.68, leaving it close to the record high of 7,089.77 reached on Friday.

Rebecca O'Keeffe, Head of Investment at Interactive Investor, said: "US earnings look set to drive global markets over the next week. If there is evidence that the earnings picture is not improving in the second quarter, it may be more difficult to sustain current valuations."

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