MILAN, April 20 (Reuters) - UniCredit upgraded its rating on Europe’s Oil & Gas index to overweight on Friday, adding to growing optimism from brokers and investors that share prices in the sector could catch up with the rise in crude oil prices to three-year highs.
“The demand for energy is fairly stable, even in an economic slowdown, and offers support for the sector to outperform,” UniCredit strategist Christian Stocker said.
The upgrade comes ahead of the release next week of earnings updates from European oil majors Royal Dutch Shell, Total and Eni.
Formerly sceptical investors are buying back into oil majors in the hope that upcoming results will mark a turning point for energy stocks which have failed to keep pace with a surge in crude prices.
Stocker said if the situation in the Middle East did not improve oil prices would remain above $70 for some time, and that following the recent decline in inventories oil prices had become more sensitive than usual to geopolitical shocks.
“In this respect, the Oil & Gas sector is a tactical and defensive buy, and has a smoothing effect on portfolio performance in the current environment, which is characterized by uncertainty and elevated volatility,” he added. (Reporting by Danilo Masoni, Editing by Helen Reid)