These are JPMorgan’s top oil stock picks into Q3 reports

JPMorgan has issued its Q3 oil stock calls, recommending long positions in Repsol and Eni, and a short on Equinor, citing a backdrop of looming oversupply, OPEC+ risks, and strong diesel-led refining margins. Repsol is favored for its superior diesel-enabled Q3/2H EPS risk/reward, with forecasts above consensus and an attractive 6.1x P/E and 11.5% cash yield. Eni is also a Positive Catalyst Watch due to strong operational momentum and potential for increased share buybacks, offering a 10.7% cash yield. Conversely, Equinor is rated Underweight due to heightened risk of distribution cuts post-2025 and an insufficiently priced 2026 FCF yield below 7%.

Analysis

JPMorgan's Q3 outlook for the oil sector identifies a significant divergence in performance driven by refining margins, specifically the strength in the diesel market where cracks have risen 50% quarter-on-quarter. The bank recommends long positions in Repsol and Eni, placing both on a 'Positive Catalyst Watch' due to their leverage to this trend. For Repsol, JPMorgan forecasts net operating income around €830 million, well above the consensus range in the low-to-mid €700 millions, supported by an attractive 6.1x forward P/E and an 11.5% cash yield. Similarly, Eni is favored for strong operational momentum, with forecasted CFFO of €2.8 billion covering nearly 80% of its full-year target, and the potential for an increased share buyback that could lift its cash yield to 10.7%. Conversely, JPMorgan issued an 'Underweight' rating on Equinor, citing a heightened risk of significant distribution cuts beyond 2025. The core of this bearish thesis is a projected 40% year-on-year decline in shareholder returns by 2026, a risk JPMorgan believes is not adequately priced into the shares, which trade at a sub-7% 2026 free cash flow yield. Among the supermajors, Shell is the preferred name with an expected continuation of its $3.5 billion share buyback, while TotalEnergies and BP are viewed as less differentiated in the near term.

Key Decisions for Investors

• Investors could consider a pair trade strategy, going long European refiners with strong diesel exposure like Repsol and Eni while shorting Equinor, which faces specific headwinds related to its future shareholder distribution capacity.
• For investors bullish on continued refining strength, Repsol's valuation at a 6.1x forward P/E and potential for an earnings beat presents a compelling long opportunity.
• Caution is warranted for current or prospective Equinor shareholders, as the market may not have fully priced in the risk of a 40% drop in capital returns by 2026.
• Among supermajors, Shell offers relative stability with its consistent $3.5 billion buyback program, while positions in TotalEnergies and BP require monitoring deleveraging progress and portfolio updates as key near-term catalysts.