This year will be the "sweet spot" for earnings at large oil companies as high oil and gas prices boost margins, but ample capacity in the oil service industry keeps a lid on costs, says Goldman Sachs. "We forecast 2011 EPS growth of 27%," for the sector, it says. Beyond 2012, the industry is likely to face shrinking margins as operating costs soar again, it says. "We expect a repetition of the 2006-08 experience of delays, cost overruns and disappointments," it says. Says Royal Dutch Shell (RDSB.LN) and Statoil (STO) are conviction buys for the European oil sector.

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