Barclays sees European oil sector bounce in 2014

The European oil sector will bounce back from its 10-year low against the FTEU300, according to Barclays. The sector has underperformed the wider European market by 25 per cent since 2012.

Following five years of massive capital expenditure Barclays see a turning point for the sector both operationally and financially.

The bank forecasts aggregate production growth for the sector of one per cent, with underlying growth, excluding Libya, higher at three per cent for 2014.

Production growth is set to return after three consecutive down years. As new fields come on stream cash margins will grow while capital expenditure will be flat. This flatlining capital expenditure follows five years of near double-digit growth.

The risks involved in project execution have also greatly declined, with 70 per cent of production supporting 2014 forecasts now on-stream compared to just 35 per cent at the start of 2013.

The bank estimates that cashflow could rise by as much as 10 per cent in 2014, reaching levels not seen since 2008. The note emphasises that this will not be the end of the sector's problems but sees this as the start of a multi-year upturn.

The bank is hopeful for Royal Dutch Shell who will take on a new CEO in 2014. Shell is able to cover both capital expenditure and dividends from operating cashflow, an ability that remains rare in the sector.

Barclays also expect a greater focus on shareholder returns.