The Brent oil price is currently trading at around $100/bbl, compared to $112/bbl a month ago, while demand for oil may only grow by 0.9% during the year.
The fall in price coupled with increased expenditure by the big oil producers calls into question the sustainability of oil and gas company cash flows, according to analysts at Charles Stanley.
In terms of price performance, oil producers have significantly underperformed the FTSE All Share Index in the first three months of the year, posting a +0.3% rise.
Oil service providers have performed even worse posting a fall of 3.5%, and given the correlation between the performance of this sector and the price of oil, it could be a sign that the price of oil is set to fall further. Some estimate that the price could dip to $95/bbl by the end of the year.
The graph shows the changing share prices of the big five oil companies during the first quarter of the year.
A spokesperson for Charles Stanley said: “For investors, oil major dividend yields are attractive but the gas sector underperformance shows investors are not convinced. High capital expenditure and dividends are consuming operating cash flow and investors are concerned by high capital intensity which is putting pressure on returns on capital.”