JPMorgan recommends two European Oil & Gas sector stocks with an overweight rating

Investing.com — JPMorgan Chase has highlighted two European oil and gas operators with an overweight rating, optimistic about these companies that have strong cash levels and can effectively handle the increasing volatility in commodity markets.

The bank’s analysis focuses on companies with superior leverage to oil price fluctuations, solid cash return plans, and structural cost-cutting measures, which are expected to deliver excellent performance.

JPMorgan Chase notes that oil and gas stocks have seen strong gains so far in 2026, driven by rising commodity prices fueled by escalating geopolitical risks in the Middle East.

The bank expects macroeconomic changes and geopolitical factors to continue to be key drivers of recent performance.

Shell

JPMorgan Chase rates Shell as a structural overweight, citing its high-quality leverage to macro oil price fluctuations. The bank emphasizes that Shell’s leverage to oil prices among European oil companies ranks in the top quartile, thanks to its global investment portfolio, with energy sales about three times its production. Shell’s position as the leading participant in the liquefied natural gas sector further strengthens its competitive stance. The company is implementing multiple initiatives to accelerate its self-improvement plan, including achieving a 1% compound annual growth rate in upstream production by 2030, optimizing its chemical business portfolio, and implementing a $5-7 billion structural cost reduction plan by 2028. With oil prices near $69 per barrel, JPMorgan Chase forecasts an 8.1% free cash flow yield in 2026. The bank notes Shell’s record quarterly share buybacks exceeding $3 billion, with a forward cash yield of about 11%. Shell’s committed cash breakeven point after capital expenditures and dividends is below $50 per barrel.

Shell PLC reported mixed results for Q4 2025, with earnings per share falling short of expectations but revenue surpassing forecasts. The company is also exploring the sale of its assets in the Vaca Muerta shale in Argentina and has appointed PwC as its new auditor, effective 2027.

Galp

JPMorgan Chase maintains an overweight rating on Galp, emphasizing the company’s increasing focus on the sustainability of oil beyond 2030. The bank believes Galp’s low-cost growth optionality stands out among European oil companies, and its proposed downstream merger with Moeve increases the potential to unlock upstream oil and gas equity value. The expansion of free cash flow is driven by the Brazilian Bacalhau oil asset, supporting one of the strongest deleveraging prospects in 2026-2027. Under current oil and gas prices, net debt-to-EBITDA ratio is projected at 0.5x by the end of 2027. JPMorgan Chase views Galp as an effective alternative for secondary refining hedging. The bank sees room for revaluation, as Galp’s dependence on oil prices is lower than historical levels, and it warrants a clearer relative valuation premium within the sector.

Recent developments include Galp Energia reaching a non-binding agreement with Moeve to merge their downstream businesses in the Iberian Peninsula.

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