World Oil Firms Were Harshly Estimated

The international investment bank Morgan Stanley upgraded the shares of Norwegian oil and gas company Norsk Hydro ASA to 'overweight' from 'underweight' .

However, the broker downgraded shares of ENI SpA to 'underweight' from 'overweight' and Total SA to 'equal-weight' from 'overweight', following a revision of its oil price forecasts.

Aside from these changes, Morgan Stanley also assumed coverage on BP PLC with an 'overweight', Royal Dutch Petroleum Co and Shell Transport and Trading Co PLC with an 'equal-weight', while it reiterated its 'overweight' stance on Repsol YPF SA.

According to the broker, Repsol and Hydro are cheap and they generate the most free cash flow with the broker's new oil price assumptions.

BP meanwhile, is expensive, but has good volume growth and, with its buyback programme and management's reputation, there is room for the valuation gap to widen.

European oils have outperformed the broader market by 9 pct so far this year, and the broker expects to see one last price-driven lift, before the party ends.

Morgan Stanley raised its oil price forecasts for 2004, 2005 and 2006. For 2005 its Brent forecast was lifted to 35.50 usd from 25 usd.