TLDR
- Brent crude climbed to $104.76 per barrel amid U.S.-Israel operations against Iran disrupting Strait of Hormuz traffic
- Nearly one-fifth of global oil supplies pass through the Strait, where shipping has virtually halted
- JPMorgan projects European oil majors could achieve free cash flow yields around 14% with sustained $100 oil
- Shell, TotalEnergies, Eni, and Galp top JPMorgan’s recommended list
- While the Fed is set to maintain current rates, the oil price shock may push back anticipated rate reductions
Wall Street analysts are taking a closer look at European oil majors as crude prices surge beyond the $100 threshold, fueled by supply concerns tied to the intensifying U.S.-Israel military operations targeting Iran.
On Wednesday, Brent crude futures advanced 1.3% to reach $104.76 per barrel, recovering from earlier declines. The rebound occurred despite news that Iraq and Kurdish officials had reached an agreement to restart oil shipments via Turkey’s Ceyhan terminal, providing modest market relief.
Meanwhile, West Texas Intermediate declined 0.6% to settle at $94.95 per barrel during the same trading session.
The conflict, now entering its third week, has brought shipping through the Strait of Hormuz to a virtual standstill. American forces have launched strikes on Iranian coastal installations housing cruise missile systems designed to threaten vessels navigating the critical waterway.
Approximately 20% of the world’s oil supplies transit through the Strait of Hormuz. Any extended interruption to this flow carries significant implications for global energy markets.
JPMorgan analyst Matthew Lofting characterizes the financial implications for European oil producers as “clearly positive.” His calculations suggest that volume losses stemming from Hormuz disruptions reduce company cash flows by approximately $6 per barrel, reaching as high as $10 for the most heavily affected operators.
This stands in stark contrast to the roughly $30 price increase observed since hostilities commenced, indicating that price appreciation substantially outweighs volume reduction for most operators.
Free Cash Flow Yields Could Hit 14%
Lofting’s analysis suggests that free cash flow yields across European oil stocks could climb from approximately 10% based on current forward pricing to around 14% in a persistent $100 oil scenario. He characterized current valuations as remaining “modestly cheap” relative to levels observed during the 2022 energy crisis.
Shares of European oil sector companies have already appreciated more than 10% since the outbreak of hostilities.
JPMorgan identifies Shell, TotalEnergies, Eni, and Galp as its preferred investments within the sector. The firm points to robust price sensitivity, extended production horizons, and attractive valuations as primary supporting factors.
Eni and Shell receive particular attention for their heightened responsiveness to oil price movements. Galp’s price leverage appears underappreciated in near-term financial metrics, according to the analysis.
TotalEnergies, Shell, and OMV maintain the most significant direct exposure to Middle Eastern operations. Conversely, Equinor, Repsol, and Galp possess minimal or no direct regional presence and may demonstrate stronger reactions to immediate price fluctuations.
JPMorgan anticipates that exceptional trading performance will provide additional upside, with models suggesting approximately $4 billion in potential gains for Shell independently.
Lofting identifies the potential reintroduction of windfall taxation as one notable risk, drawing on the 2022–23 experience. His models incorporate an additional 5% levy on cash flows as a possible headwind.
Fed Meeting Adds Uncertainty
Market participants exercised caution ahead of Wednesday’s Federal Reserve policy announcement. The central bank is broadly anticipated to maintain interest rates within the 3.5% to 3.75% range.
Fed Chair Jerome Powell, whose term concludes in May, is scheduled to address markets following the decision. Market observers will scrutinize his remarks for indications of how the oil price shock might influence future rate policy.
Prior to the conflict’s escalation, markets had anticipated a potential rate reduction during the latter half of 2025. ING analysts suggest the Fed may now communicate a postponement of such cuts.
According to JPMorgan, an unusually cold winter season combined with recent market dynamics should bolster energy trading performance throughout the first quarter.
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