JP Morgan makes two upgrades and continues to back Shell as Middle East war puts oil supply at risk

Core Viewpoint - JP Morgan has upgraded two major European oil companies and continues to support Shell as geopolitical tensions in the Middle East pose a real risk to oil supply [2][3] Group 1: Company Upgrades - JP Morgan upgraded Eni to overweight and raised TotalEnergies to overweight from neutral, while maintaining overweight ratings on Shell and Galp [3] - The bank's commodities team highlighted that regime changes in oil-producing countries typically lead to an average oil price increase of 30% for at least three months, indicating a significant shift in energy markets [5] Group 2: Market Dynamics - The Strait of Hormuz, through which 20% to 30% of global oil and LNG supply passes, is now central to a supply security crisis that could alter energy markets [4] - Despite strong recent performance, European oil stocks have aligned with oil prices, suggesting that macroeconomic and geopolitical factors are the main drivers of near-term share price performance [6] Group 3: Investment Strategy - For investors looking to increase energy exposure, JP Morgan favors stocks with direct leverage to oil prices, long-life production assets focused on liquids, and attractive valuations under higher oil price scenarios [7] - The bank acknowledged the uncertainty regarding the duration of the conflict and its impact on supply flows, but noted that the risk-reward profile for energy stocks has shifted significantly in favor of buyers [7]