JPMorgan: The Most Worth Buying EU Oil and Gas Stocks as Middle East War Escalates

Investing.com – The comprehensive military strike in the Middle East indicates that tail risk scenarios are becoming a reality. The Strait of Hormuz carries 20-30% of the world’s oil and liquefied natural gas supplies, making supply security a key focus.

Although the duration of the situation remains highly uncertain, the latest analysis shows that EU oil and gas stocks have reconnected with oil prices, with valuations appearing reasonable rather than obviously expensive. This suggests macroeconomic and geopolitical factors remain key determinants of recent performance.

JPMorgan Chase commodity research indicates that regime changes in oil-producing countries typically push oil prices up by 30%, lasting at least three months.

For investors looking to increase their energy sector exposure, JPMorgan recommends stocks that offer oil price leverage, production and resource durability, and become relatively cheaper at higher price scenarios.

Shell

JPMorgan Chase rates Shell as an overweight, citing strong oil price leverage and excellent risk-reward in delivering attractive free cash flow yields. The firm expects, based on last week’s Brent crude futures price of $69-66 per barrel, a free cash flow yield of 8.5% in 2026-2027, with sensitivity exceeding 200 basis points for every $10 change in oil price.

Recent news reports suggest Shell is exploring the sale of its assets in Argentina’s Vaca Muerta shale formation and has paused new investments in Kazakhstan due to legal disputes. The company has also selected PwC as its new auditor, replacing Ernst & Young starting in 2027.

Galp

JPMorgan Chase states that Galp offers sustained low-cost oil growth, which warrants a premium. Recent restructuring initiatives have created a more linear investment and growth trajectory and enhanced acquisition selectivity, as the industry needs to address production demands into the 2030s.

Galp Energia has reached a non-binding agreement with Moeve to merge their downstream businesses in the Iberian Peninsula. The company also received mixed analyst ratings, including Morgan Stanley upgrading to overweight, while Jefferies and Berenberg downgraded to hold.

Eni

JPMorgan Chase has upgraded Eni stock to overweight, noting that the company offers top-quartile oil and gas leverage through years of top-line volume growth and enhanced strategic execution.

In scenarios where oil prices exceed $70, relative valuation falls back to sector-wide discounts.

Eni recently announced the discovery of significant natural gas reserves in Indonesia’s Kutei Basin and sold a 10% stake in the offshore Baleine oil field in Côte d’Ivoire to SOCAR of Azerbaijan. The company is also reportedly considering re-entering the oil and gas trading business.

TotalEnergies

Also upgraded to overweight by JPMorgan Chase, the French oil giant TotalEnergies offers competitive oil price leverage and leading oil and gas durability, with proven reserves life of 12 years. Its strong balance sheet enables it to convert higher prices into higher dividends.

TotalEnergies reported Q4 adjusted earnings exceeding analyst expectations, as production growth helped offset the impact of falling oil prices. Revenue for the quarter also significantly surpassed market consensus.

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