Change in Oil sentiment for the big guns

(Bloomberg) -- Energy companies are finally starting to come back into favor.
After enduring the longest oil-price collapse in more than a decade, crashing profits and an investor exodus, Europe’s biggest producers are regaining fans as analysts bet earnings bottomed last quarter and will now start to recover.
While Total SA, the region’s second-biggest oil company, will probably post the worst quarterly performance since 2009, it also has the highest proportion of buy ratings in a year, according to analysts surveyed by Bloomberg. Despite similarly bleak forecasts, Royal Dutch Shell Plc, Europe’s No. 1, has the biggest share of buy recommendations since mid-2012 while BP Plc has the most since February.
The ratings show faith in the producers’ ability to weather the commodities rout, which has seen Brent crude tumble by 40 percent in a year and company valuations shrink to at least three-year lows. More analysts now believe that the industry’s sweeping spending cuts, job losses and shuttered output will be sufficient to bolster oil prices and foster profit growth.
“It is possibly a case of being darkest before the dawn,” Lydia Rainforth, a London-based analyst at Barclays Plc, said by e-mail. A pullback in production and delays to projects “make some form of recovery inevitable” in the oil market, she said.
Shell’s B shares, the most widely traded, have increased 15 percent this month, heading for the best performance since April 2008, after previously falling 30 percent this year. Total has gained 12 percent, while BP is up 13 percent, the biggest jump since October 2011. Energy companies are the best performers on the MSCI World Index this month after languishing at the bottom for most of the year.
Spending Cuts

The rebound comes after the companies made spending cuts to help them ride out the downturn. Drillers have reduced investments in exploration and production by a record 20 percent this year, International Energy Agency Executive Director Fatih Birol said Oct. 6. Companies also have divested assets, scrapped staff incentives and renegotiated contracts to lower costs.