Morgan Stanley Downgrades European Oil Stocks

Overview

Morgan Stanley has downgraded its outlook for European oil stocks, citing concerns over slowing global economic growth and the impact of the US-China trade war. The downgrade comes as oil prices have fallen sharply in recent months, putting pressure on the earnings of oil companies.

Key Points

• Morgan Stanley has downgraded its outlook for European oil stocks to "underweight" from "equal-weight."
• The downgrade is based on concerns over slowing global economic growth and the impact of the US-China trade war.
• Oil prices have fallen sharply in recent months, putting pressure on the earnings of oil companies.

Economic Slowdown

The global economy is slowing down, and this is expected to reduce demand for oil. The International Monetary Fund (IMF) has cut its forecast for global growth in 2019 to 3.3%, down from 3.6% in 2018. This slowdown is expected to be particularly pronounced in Europe, where growth is forecast to slow to 1.9% in 2019, down from 2.4% in 2018.

Trade War

The US-China trade war is also expected to weigh on the demand for oil. The trade war has disrupted global trade flows, and this is expected to reduce the demand for oil from both China and the United States. China is the world's largest importer of oil, and the United States is the world's second largest importer of oil.

Falling Oil Prices

The slowdown in global economic growth and the impact of the US-China trade war have led to a sharp decline in oil prices. Brent crude oil, the international benchmark, has fallen from a high of $75 per barrel in October 2018 to around $60 per barrel today. This decline in oil prices is putting pressure on the earnings of oil companies.

Conclusion

Morgan Stanley's downgrade of European oil stocks is a sign of the challenges facing the oil industry. The global economy is slowing down, the US-China trade war is disrupting global trade flows, and oil prices are falling sharply. These factors are all expected to weigh on the earnings of oil companies, and Morgan Stanley believes that the sector is now undervalued.