Merrill Lynch analysts positive on US integrated companies' earnings

Merrill Lynch Global Securities Research & Economics Group increased its third quarter and 2003 earnings per share estimates for US-based integrated oil companies as a result of commodity prices and downstream margins.

Oct. 14, 2003

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By OGJ Staff

HOUSTON, Oct. 14 -- Merrill Lynch Global Securities Research & Economics Group increased its third quarter and 2003 earnings per share estimates for US-based integrated oil companies as a result of commodity prices and downstream margins.

"We are raising our 2003 oil price forecast to $29.70/bbl (West Texas Intermediate) from $28.25/bbl, which incorporates even higher than expected third quarter prices and an upward adjustment to our fourth quarter forecast to $25.50/bbl from $24/bbl—which admittedly is still conservatively low. Tight inventories resulted in an average oil price of $30.19/bbl in the third quarter vs. our projected price of $26.00/bbl," the firm said in an Oct. 8 research note.

Merrill Lynch North American E&P analyst John Herrlin has lowered the natural gas price forecast for 2003.

"Our full year 2003 Henry Hub gas price forecast falls to $5.50/mcf from $5.80/mcf. The positive trend in earnings per share revisions for the integrated oils has not yet peaked in our view. We continue to believe that our WTI oil price forecast of $29.70/bbl in 2003 and $24/bbl in 2004-07 remains conservative," the research note said.

Refining
Merrill Lynch said refining indicators show that the integrated oil companies will achieve an even greater level of downstream profitability in the third quarter than the firm had anticipated.

"Refining indicators in the US were 20%-30% higher than robust second quarter levels in all regions," analysts said.

In both the second and third quarters, US refining margins were above mid-cycle levels. Elsewhere, refining indicators were mixed compared with the second quarter. Asia was 16% higher while Europe was 9% lower.