The oil price has had a good time of late, capped by a spate of profit taking at the end of April this year. Are investors now worried about the ever-present US shale drillers returning their rigs to the vertical? Or is it simply a case of shredded nerves? More pertinently, we wonder whether the exploration and production subsector is still due a healthy rebound. In particular, are Tullow Oil shares a buy or a sell right now?

What’s special about Tullow Oil shares?

Like the battered Mining stocks, there’ve been some impressive moves already in the oil sector – more notably in E&P than in the oil majors, whose shares are less volatile and more broadly exposed to the whole oil story, some of which remains nicely profitable! Tullow Oil shares are today up some 118% from their 21 Jan lows, having made the key break above their 200-day moving average on 13 April. Yet the fabled late April ‘golden cross’ is not exactly what a more pedantic chartist would term ‘a proper one.’ This leaves us asking the question: Is Tullow Oil’s rally yet to find its sea legs? If so, will it?!

With a current price to earnings ratio of 206, Tullow may look somewhat overvalued. But you should note that 206 is also the subsector average – which means Tullow is the only UK listed E&P Company on track to record a profit in 2016. If we really have seen a bottom in the oil price, then Tullow will be at the front of the pack recovery-wise.

Also of note are the company’s Ghanaian assets which are forecast to have operating costs amounting to just $8 a barrel. This is an indication that a) Tullow is well placed to survive both current and lower oil prices and b) once things improve, cash flow should also swiftly improve allowing the company to start paying off its debts. We’ve seen in Glencore shares the benefit of a good debt reduction plan.

Technically, Tullow Oil shares have sold back from the £2.90 level and are now back within the 2016 rising channel some 10% below – daily moves of such magnitude are something of the norm for these shares. We note technicals are either overbought or retreating from that area while the directional indicators have peaked at their bullish extremes, indicating some more downside towards 197p and the channel floor where a buy opportunity may present itself.

What the brokers are saying about Tullow Oil shares

The brokers are on average unsurprisingly cautious on Tullow Oil. There are currently 10 Buy ratings, 12 Hold and just 5 Sell ratings. While we note the most bearish broker, Investec, is looking for a whopping 76% downside from current levels, the most bullish is seeing potential for 58% upside. Consensus sees shares falling 6% towards 238p in the next 12-months. Indeed, we’d expect a move beyond that before calling a buy opportunity on Tullow Oil.

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