Europe’s energy stocks XX:SXEP have only gained 10% since June while oil prices CL.1, +1.08% have jumped 30%. JPMorgan said it’s recommending the majors over midcaps, upgrading Eni ENI, +1.07% to overweight, reiterating overweights on Shell SHEL, +0.64%, TotalEnergies TTE, +0.02% and Neste NESTE, +2.25%, and lifting Repsol REP, +0.48% to neutral.
“Dear generalists, put your seatbelts on,” said analysts led by Christyan Malek. “While we believe the sector is in a structural up-cycle and oil should normalize higher, we expect prices and by extension energy equities to trade in a wider range, discounting an effective higher weighted average cost of capital associated with elevated price volatility and concerns around ESG/peak demand.”
“This may lead to multiple oil-led energy crises in this decade, potentially much more severe than the gas crisis seen in Europe in 2022. Moreover, it serves to position OPEC firmly at the steering wheel of the global oil market, to take greater share of demand growth, while helping mitigate sharp price moves in either direction.”
Friday saw a catching down of European stocks to the sharp decline on Thursday on Wall Street, even though U.S. stock futures pointed to a stronger start.