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Both Royal Dutch Shell and BP surprised on the upside with their figures last week prompting some frantic activity among the analyst community.

Recommendations were shifted and price targets increased virtually across the board. Edward Westlake, at Credit Suisse, upgraded BP to ‘outperform’ from ‘neutral’ and increased his target price for BP to 720p and for Shell to £23.

He notes that this is the ‘First quarter of rising revenues but declining costs for BP and RDS. We believe the higher upstream capture rate is likely to be the most appealing feature of Q108 results for investors. There are two still powerful drivers of EPS upgrades across the sector (i) the oil price, but perhaps more importantly (ii) gas prices in the UK, Asia and the US have also started to appreciate.’

Goldman Sachs’ Michelle Della Vigna, in turn, raised her price target on BP from 615p to 645p, and on Shell to £22.70 from £21.80, reiterating her ‘buy’ rating on the former and a ‘neutral’ take on the latter. She says: ‘We reiterate our bullish call on the energy sector in Europe based on strong EPS growth and free cash flow generation for the integrated oils, reinforced by strong 1Q results.’

Elsewhere Richard Griffiths at Evolution increased his price target for BP from 650 to 750p. He says: ‘The turnaround story in BP is gathering momentum ahead of schedule and gives plenty of scope for more earnings surprises on the upside.’ Lehman, Deutsche and JP Morgan also upped their targets for the oil giant.

by Tom Sieber