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Investing.com - UBS has named TotalEnergies (EPA:TTEF), Galp (LISB:GALP), and Saipem (BIT:SPMI) as its top picks for 2026 in the European energy sector, citing capex quality as a key differentiator for stock selection.
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The investment bank forecasts an oil surplus in the near term, with inventories building at approximately 2.6 million barrels per day in the first quarter of 2026 before tightening in the second half of the year. UBS projects an average Brent price of $64 per barrel in 2026, noting that while price spikes remain possible, they will likely be short-lived.
UBS argues that distribution policies should be viewed as outcomes of investment quality rather than drivers of relative valuations. The bank’s analysis reveals significant differences in capital expenditure quality across companies that are not currently reflected in share valuations, which it expects to influence companies’ ability to shift distributions toward dividends.
The European energy sector has reduced its share count by 21% since 2021 through buybacks, which currently represent 52% of total distributions. However, UBS suggests buybacks may become less prominent as EV/DACF multiples have gradually increased, balance sheets have weakened for some companies, and peak oil forecasts have shifted further into the 2030s.
In its latest ratings adjustments, UBS upgraded Eni (BIT:ENI) to Buy with an 18 euros per share price target and TotalEnergies to a top pick with a 62-euro target, while downgrading Shell (LON:SHEL) to Neutral with a 3,000 pence target. Neste (HEL:NESTE) was also upgraded to Buy with a 20.5-euro price target based on expected earnings support from higher margins in both refining and renewable fuels.
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