JPMorgan has named two European oil and gas companies as Overweight picks, citing robust cash positions and structural initiatives that, in the bank's view, leave them better prepared to cope with mounting volatility in commodity markets.
The bank's selection criteria emphasize companies with above-average sensitivity to oil-price moves, strong distributions to shareholders and multi-year cost-saving plans that should support returns through changing macro and geopolitical conditions.
Market context
According to JPMorgan, European oil and gas equities have posted strong gains so far in 2026, tracking an increase in commodity prices that the bank attributes to heightened geopolitical risk in the Middle East. JPMorgan expects both macroeconomic developments and geopolitics to remain important near-term drivers of performance across the sector.
Shell
JPMorgan assigns Shell a structural Overweight, highlighting several pillars of the bank's bullish stance. The firm points to Shell's top-quartile leverage to oil prices among European peers and notes that the company's global portfolio exhibits roughly three times longer energy sales relative to production. That sales-versus-production profile, the bank argues, helps position Shell to benefit from higher commodity prices for a longer period.
- JPMorgan underscores Shell's leading position in liquefied natural gas as a competitive strength.
- The bank cites an accelerating self-help program at Shell, including a targeted upstream production growth rate of 1% compound annual growth to 2030, ongoing portfolio optimization in chemicals, and a structural cost-reduction program expected to remove $5-7 billion by 2028.
- With oil trading near $69 per barrel, JPMorgan models a 2026 free cash flow yield for Shell of 8.1% and notes forward cash yields around 11% as well as a track record of distributing more than $3 billion in buybacks per quarter.
- JPMorgan also calculates Shell's committed cash breakeven after capital expenditure and dividends to be below $50 per barrel.
JPMorgan's note references Shell PLC's mixed fourth-quarter 2025 results, where the company missed earnings-per-share forecasts while reporting higher-than-expected revenue. The bank also records two corporate developments cited by the company: reports that Shell is exploring a sale of assets in Argentina's Vaca Muerta shale formation, and the company's appointment of PricewaterhouseCoopers as its new auditor, effective in 2027.
Galp
JPMorgan also assigns an Overweight rating to Galp, drawing attention to what it sees as the company's pivot toward preserving oil optionality into the 2030s and beyond. The bank highlights Galp's low-cost growth optionality as a point of differentiation among European oil companies.
- JPMorgan views the proposed downstream combination between Galp and Moeve as a potential mechanism to unlock upstream oil and gas equity value.
- The bank says free cash flow growth at Galp will be powered by the Bacalhau oil asset in Brazil, supporting what JPMorgan describes as one of the sector's strongest deleveraging profiles for 2026-2027.
- Under forward oil and gas price assumptions, JPMorgan models Galp's year-end 2027 net debt to EBITDA at 0.5 times.
- JPMorgan positions Galp as an effective second-tier refining hedge alternative, suggesting the company could re-rate with reduced oil-price dependency relative to its historical pattern and thereby justify a clearer sector-relative valuation premium.
In recent corporate developments, Galp Energia reached a non-binding agreement with Moeve to combine their downstream operations in the Iberian Peninsula, a move the bank highlights when assessing the company's potential to unlock value.
Implications and outlook
JPMorgan's analysis centers on companies that combine leverage to oil-price upside with disciplined capital allocation and structural cost reductions. For the bank, Shell and Galp exemplify these attributes within the European oil and gas complex, albeit through different strategic channels - Shell via advantaged LNG positioning and portfolio duration, and Galp via low-cost growth and a material near-term free cash flow driver in Bacalhau.
JPMorgan expects macroeconomic trends and geopolitical tensions to continue shaping returns across the sector, with the two names it highlights seen as relatively well-placed to deliver shareholder returns and balance-sheet improvement in the current backdrop.