By Bryce Elder and Neil Hume
Published: February 23 2009 08:42 | Last updated: February 23 2009 22:54
BP and Royal Dutch Shell weighed on the FTSE 100 on Monday as the benchmark closed within 70 points of its November six-year low.
Earnings concerns sent the stocks in the opposite direction to oil prices.
We believe the oil sector is entering a steeper and longer downturn than either the oil or equity markets imply and that large-cap oil shares are not as defensive as currently priced, BarCaps Tim Whittaker said.
The former Lehman Brothers analyst saw no oil price recovery before 2012 and the cost of maintaining dividends consuming all of BP and Shells earnings for the next two years.
He pointed out that industry costs had doubled since 2004, when oil last traded around $40 a barrel. This led BarCap to forecast earnings 40-50 per cent below the market consensus.
Until the much lower earnings and cash flows we foresee are priced in, we expect the large-cap oils to underperform, he said.
BP lost 2 per cent to 453½p, its lowest since October, while Shell B shares fell 2.3 per cent to a two-month low of £15.58.
Together the pair took 17 points off the FTSE 100, which closed lower by 38.33 points, or 1 per cent, to hit a three-month low of 3,850.73.
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