Citi upgrades BP, increases oil price estimate

An analyst raised his oil price estimates for the next two years and upgraded shares of British oil producer BP PLC, predicting Europe-based integrated oil companies will continue to benefit from high-priced crude.

Citi Investment Research analyst Mark Bloomfield upgraded BP to "Hold" from "Sell" in a client note late Monday. He also raised his profit estimates on several U.S.-traded European oil stocks, including Spain's Repsol YPF SA, Italy's Eni SpA, Norway's StatoilHydro ASA and France's Total SA.

Citi now predicts oil prices at $117 a barrel in 2008 and $123 a barrel in 2009, with its long-term forecast raised from $75 to $100 a barrel.

On Tuesday, light, sweet crude for July delivery rose $2.80 to $137.15 a barrel on the New York Mercantile Exchange.

Bloomfield said BP will continue to benefit from high oil prices, although he was still cautious on the company's fundamentals and added that a recent turnaround at the company "may be more a triumph of hope over reality."

However, he said the effects of higher-priced oil will continue to weigh on the broader stock markets, test economic growth and threaten the business model of the sector.

"In fact, the oil sector has proved reasonably adept at losing its free cash flow in the last three years," he said.

BP, which trades in the U.S. as American Depositary Shares, lost $1.31 to $69.29 in morning trading on Tuesday. The stock has traded between $57.85 and $79.77 in the last 52 weeks.