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Investing.com -- European oil and gas stocks are well-positioned in a sustained $100-per-barrel oil environment, with higher prices more than offsetting disruptions tied to Middle East supply risks, according to JPMorgan.
Analyst Matthew Lofting said the “net financial impact is clearly positive,” estimating that lost volumes from Strait of Hormuz disruptions translate to around $(6)/bbl in cash flow from operations, or up to $10/bbl for the most exposed companies. That compares with roughly a $30 increase in oil prices since the conflict began.
On valuation, Lofting noted that free cash flow (FCF) yields could rise from around 10% under forward prices to roughly 14% in a $100 oil scenario, which still screens “modestly cheap” versus levels seen during the 2022 energy crisis.
Commenting on stock prices, the analyst said that “a rising tide has lifted all boats,” with sector shares already up more than 10% since the conflict began.
In this environment, JPMorgan’s preferred names are Shell, TotalEnergies, Eni and Galp, citing their combination of strong price leverage, long-duration production profiles and improving valuations under higher commodity prices.
Eni and Shell were also highlighted for their higher sensitivity to oil prices, while Galp’s leverage is seen as understated by near-term financials.
Lofting expects additional support from trading conditions, noting that a prolonged conflict could create “good trading volatility” and boost earnings, partially offsetting production losses. JPMorgan models a one standard deviation improvement in trading performance, including about $4 billion of upside for Shell.
At the same time, some risks remain. Lofting flagged the potential return of windfall taxes, modeling an incremental 5% tax on cash flows based on precedents from 2022–23.
He also pointed to varying exposure to Middle East assets, with TotalEnergies, Shell and OMV among the most exposed, while Equinor, Repsol and Galp have little to no direct exposure. The latter group is “likely to exhibit higher-than-usual relative sensitivity to near-term O&G prices,” the analyst said.
Looking ahead to the first quarter, a colder winter and recent market dislocations are expected to support stronger trading performance, he added.
