JPMorgan shuffles EU oil and gas stocks with one double-upgrade, one downgrade

Investing.com -- JPMorgan has reshuffled its ratings on European oil and gas majors, issuing a double upgrade on Repsol (BME:REP) to Overweight from Underweight and cutting Equinor (OL:EQNR) to Underweight from Neutral, pointing to sharply contrasting exposure to diesel market strength and future cash return capacity.

The bank said renewed diesel market tightness in Europe is set to persist into 2026, defying broader oil market surplus trends.

“We forecast at least $20-25/bbl with asymmetric upside in the event of further supply headwinds,” analyst Matthew Lofting said, citing low global stocks, accelerated refinery closures and upcoming maintenance.

JPMorgan expects second-half excess demand in Europe, versus domestic supply, to average 1.4 million barrels a day, or 20% of demand, well above the prior three-year average.

Repsol’s double-upgrade reflects what the analysts described as “leading leverage to diesel and any OPEC stimulated widening in crude spreads.”

Its Iberian refining system, with near 1 million barrels a day capacity, delivers a middle distillate yield above 50%, the highest in the sector, and has top-end EPS sensitivity of 7% per $1/bbl refining margin change.

JPMorgan also pointed to a 7.3% dividend yield, a 12.5% total cash yield including buybacks, and a 2026 price-to-earnings ratio at the low end of peers, noting there is “plenty of room for a diesel stimulated re-rating.”

On the other hand, Equinor’s downgrade comes due to its upstream-weighted portfolio, limited refining exposure, and a “diminishing capacity to free cash flow (FCF) fund competitive total shareholder return (TSR).”

At $65 Brent and €30 EU gas, JPMorgan forecasts a 2026 free cash flow yield of 5.7%, below the 8.6% sector average, alongside rising gearing that could be further pressured by participation in Orsted’s equity raise.

The bank also flagged Equinor’s reliance on European gas, with storage already high and any Russia-Ukraine ceasefire potentially weighing on price premia.

Revising its refining margin assumptions up by $1/bbl for 2H25 and 2026, JPMorgan lifted sector EPS forecasts by 2% for 2025 and 4% for 2026 versus consensus.

Alongside Repsol, overweight-rated stocks remain Shell (LON:SHEL), Eni (BIT:ENI) and TotalEnergies (EPA:TTEF).