JPMorgan (NYSE:JPM) has recently upgraded its rating on global energy stocks from Neutral to Overweight, predicting a supply-demand gap after 2025 and improving sector fundamentals. The bank anticipates that major companies will outperform midcaps and has upgraded Eni to Overweight while maintaining Overweight on Shell (LON:SHEL), TotalEnergies (EPA:TTEF), and Neste. Repsol (OTC:REPYY) was also lifted to Neutral.
Analysts led by Christyan Malek suggest the sector is experiencing a structural up-cycle, with oil prices and energy equities expected to fluctuate within a wider range. This reflects an effective higher weighted average cost of capital due to increased price volatility and concerns around environmental, social, and governance (ESG) issues and peak demand.
The analysts argue against peak demand fears within their investment horizon through 2030, citing the immaturity of the clean energy system in catering to end customers effectively. They warn that without an increase in oil and gas capital expenditure (capex), there's a risk of energy deficits and significant inflation across commodities. This situation could potentially lead to severe oil-led energy crises this decade, which could be worse than Europe's gas crisis in 2022.
Interestingly, the analysts do not view oil prices in the $100-to-$120 range as destructive to demand, as it would still represent less than 4% of the world economy. They believe this situation could bolster OPEC's control over the global oil market and help regulate sharp price fluctuations.
Key stocks expected to outperform on a global scale include Eni, Shell, TotalEnergies, Saudi Aramco (TADAWUL:2222), Exxon Mobil (NYSE:XOM), Marathon Petroleum (NYSE:MPC), Tenaris, Baker Hughes, Cenovus, Prio, PetroChina, Beach Energy (OTC:BCHEY), and Ampol. Despite a 30% surge in oil prices recently, European energy stocks have only seen a 10% increase.
In other market movements, European stocks were adjusting to Wall Street's sharp decline on Thursday, with the U.K.'s FTSE 100 remaining steady, while Germany's DAX and France's CAC 40 experienced decreases. Ubisoft Entertainment shares increased by 4% following provisional approval from the U.K. competition regulator for the Microsoft-Activision deal, which would grant the French video games maker cloud rights to Activision games. Furthermore, AstraZeneca (NASDAQ:AZN)'s stock rose by 2% after announcing a successful Phase III trial of a breast cancer drug in partnership with Daiichi Sankyo.
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