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The Wall Street Journal: Energy Blog: Still Bullish on Energy

May 23, 2007, 12:12 pm
Posted by Mark Gongloff

Worth Civils checks in with this look at one analyst’s good feelings about Europe’s oil majors.

Merrill Lynch is still bullish on Europe’s oil and gas industry. In a research note yesterday, analyst Karen Olney offered three reasons for her optimistic outlook of the region’s oil sector, which includes Eni and Royal Dutch Shell.

First, she said, European oil stocks are cheap. Compared with 17 other sectors in Europe, oil has the second-cheapest price-to-earnings ratio after telecom and is on par with the insurance industry.

The oil sector is also defensive, Ms. Olney asserted. “If history is any guide, the oil sector is negatively correlated to risk appetite and does well when investors get nervous,” she wrote. “As profit growth starts to slow, volatility usually goes up. Oil is a safe place to hide during pockets of volatility.”

Finally, she noted, oil prices are rising above analysts’ consensus 2007 estimates of $60 a barrel amid supply concerns and healthy demand. “The oil sector is one of those odd sectors that can do well if global growth remains strong or offer protection if things take a turn for the worse,” she wrote.

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