Bernstein names its most preferred European oil stock, downgrades Shell

Investing.com -- Bernstein has reshuffled its European oil and gas preferences, upgrading TotalEnergies (EPA:TTEF) to Outperform and naming it its most preferred stock, while cutting Shell PLC (AS:SHEL) to Market Perform.

The changes reflect a broader recalibration of the sector view amid updated oil price assumptions and stock-specific developments.

The brokerage firm now sees Brent crude averaging $65 per barrel over 2025-26, down from a previous $75 estimate.

Despite the recent $5-6 per barrel spike driven by Middle East tensions, Bernstein projects that "modest 2025-26 oil demand growth is more than covered by non OPEC supply growth" and expects oversupply to pressure prices absent major disruptions.

TotalEnergies’ upgrade is underpinned by strong production growth, industry-leading cost structure, and robust shareholder returns.

Bernstein analysts highlight the company’s upstream unit cost of just $4.90 per barrel, calling it "best in class on unit production costs." The firm believes that TotalEnergies is “slated to deliver one of the strongest 2025-26e production growth rates among its major peers.”

Its balance sheet strength, consistent execution on its transition strategy, and a projected total distribution yield of 13.4% in 2025 also contributed to the more positive view.

“We estimate 25% upside to our price target of €67/sh, and hence we have upgraded the stock from Market-Perform to Outperform, as we move to “bullet proof” the European oil portfolio for risks to the upside from a war, and the downside from a fundamentally oversupplied oil market in 2025-26,” analysts led by Irene Himona noted.

“We believe Total is well placed for both scenarios,” they added.

In contrast, Shell’s (AS:SHEL) downgrade reflects more limited upside following significant gains over the past year.

The analysts point out that “capital discipline, the restructuring, simplification and turnaround, now appear well embedded in market consensus, and with limited valuation upside, it is difficult to see how it can surprise.”

The broker also upgraded Galp Energia (ELI:GALP) to Outperform on the back of visible growth catalysts. Bernstein pointed to the ramp-up at Brazil’s Bacalhau oilfield, strong earnings momentum, and the potential disposal of its Namibian stake.

"Near term, the company has said it is working to complete the farm down by year-end," Bernstein wrote, adding that any deal would likely remove market uncertainty.

Moreover, Saudi Aramco (TADAWUL:2222) was also lifted to Market-Perform from Underperform for the first time since its 2019 IPO.

The revision reflects the company’s ability to withstand downside risks given its "lowest cost barrels in the world, the highest Return on Average Capital Employed (RoACE), the strongest balance sheet," while also benefiting from any supply shocks via its spare capacity.

Meanwhile, Bernstein maintained Outperform ratings on BP (NYSE:BP) and Equinor (OL:EQNR), while Repsol (BME:REP), Eni SpA (BIT:ENI) and Aker BP (OL:AKRBP) remain rated Market-Perform.