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A swell for oil stocks
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March 29, 1999: 9:21 a.m. ET
Shares rebound as takeovers and oil prices boost performance
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LONDON (CNNfn) - With another mega-deal on the horizon oil stocks trading in Europe, already making a broad-based comeback, jumped Monday.
BP Amoco confirmed Monday that it is discussing a possible combination with Atlantic Richfield. The news drove oil and gas shares up by an average of 2 percent Monday, with the U.K. giant's stock up 5 percent.
The Monday surge is keeping the sector on a roll. Analysts say oil companies are adjusting to a world in which oil hovered around $10 a barrel. By cutting costs and brokering deals, earnings have been boosted as oil prices close in on $15 a barrel.
For instance Royal Dutch/Shell, the world's second-largest oil firm, has already made significant steps to slash costs. These have already been factored into the company's stock price, though shares climbed 3 percent Monday.
Other firms in continental Europe still have more to do, but analysts believe most are positioned to take advantage of improved investor sentiment.
For example shares in Total (PFP) of France have climbed from 85.95 French francs to 114.30 francs, the highest level since last November, while Elf Aquitaine, Norsk Hydro and ENI all reached 1999 highs Monday.
Enterprise Oil and Lasmo, the U.K. exploration companies which broke off merger talks earlier this year, also climbed around 1.5 percent Monday.
Industry comeback
The Monday gains in oil stocks come as the oil sector turns its general performance numbers around.
Restructuring and massive cost cuts have pushed the oil sector to the top of the earnings European growth league with increases of over 20 percent expected this year compared to a European corporate average of 7 percent.
By contrast, oil shares were at the bottom of every major European index in 1998 under the weight of collapsing oil prices.
But the sector has powered ahead over the last month. On average, oil stocks have outperformed their home markets by 11 percent this year, mostly in the two weeks since OPEC ministers agreed to slash production.
The 12 sector stocks account for 7.3 percent of the FT Eurotop 300 index and have climbed 18.88 percent since the start of the month compared to the index average of 1.23 percent.
Mark Howdle, oil analyst at Salomon Smith Barney even suggests that investors switch out of telecom stocks at the top of their valuations into oil shares. "The recent OPEC accord is a massive positive shift in the sector's risk/reward balance," he noted in a recent Salomon SmithBarney report.
Oil stocks are recovering from historic lows, with profits at the large integrated companies falling 20 percent last year. With oil heading beyond $15 a barrel, earnings estimates for the large integrated players - including BP Amoco, France's Total Fina and ENI in Italy - are forecast to climb 21 percent this year and 37 percent in 2000.
The fervor has fed the futures market with London's International Petroleum Exchange, responsible for two-thirds of global oil trades, recording its busiest ever month. Trading in Brent futures reached 69,708 contracts in the month to date compared with 55,000 for March 1998. 
-- by staff writer Doug Cameron
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