EUR 200.00 For Business Accounts Only

OIL SECTOR: CRUDE BELOW BREAK EVEN - SENSITIVITIES (ANÁLISIS BANCO SABADELL)

Brent crude is trading at US$ 36/barrel, currently down -20% after the breakdown in negotiations between OPEC and Russia on Friday. At this level, the level the sector has signalled as the break-even point of US$ 45-55/barrel has been completely broken. According to our calculations, ± US$ 1 in the price of crude oil has an impact of ±2.1% on the valuation of REP (-1.9% in adjusted EBIT / -2.4% in EPS), -2.4% on ENI (-2.1% in adjusted EBIT / -3.4% in EPS) and -2.2% on TOT (-1.3% in adjusted EBIT / -2.1% in EPS). Thus, our initial conclusion is that REP, currently falling -13%, is pricing in a crude oil price of US$ 39/barrel in perpetuity (vs. US$ 45 for ENI and US$ 46 for TOT), and thus we can affirm that it is being punished too harshly, at least compared to the other stocks.
Our forecast is that Brent crude prices will return to what we consider a reasonable level (US$ 55-60) towards the end of the year, while we could expect coronavirus cases to be reduced in the short term. A production cut from OPEC and/or the imminent announcement of fiscal policies in the US and Europe could lead to a much stronger, short-term rally in the price of crude (we do not revise these estimates for the time being, as although the 2020 average will be affected, in our scenario it would have a minimum impact in the long term).
We do not revise our valuation due to the lack of visibility, although we admit that upside potentials now seem to be out-of-step. We maintain our recommendations and see a BUY opportunity in REP.