European energy stocks rise as oil rebounds on Hormuz risks

Barclays projects BP net debt falling to $36–$40 billion by year-end

European energy stocks opened higher on Tuesday as oil prices recovered from a four-session slide. In London, Shell rose 0.8% and BP gained 0.5%, while France’s TotalEnergies and Norway’s Equinor added roughly 1% apiece, Italy’s Eni climbed 0.8% and Spain’s Repsol rose 0.6%. By the European morning, Brent crude futures were up 1.3% at $101.64 a barrel and West Texas Intermediate had gained 1.3% to $97.00 a barrel.

The rebound followed a Monday session in which oil had settled lower on easing concerns about Middle East flows and expectations of renewed diplomatic engagement between the United States and Iran at the U.N. General Assembly. West Texas Intermediate settled down 4.5% at $95.78 a barrel and Brent fell 3.4% to $100.34 a barrel. “Prospects for renewed U.S.-Iran engagement during this week’s U.N. General Assembly have created a potential path toward de-escalation, despite the absence of a formal breakthrough,” Gelber & Associates wrote in a note. Continued Houthi attacks and shipping constraints, the firm added, “indicate that the selloff reflects improving expectations rather than normalized Middle Eastern flows.” The picture shifted back by Tuesday morning: a tanker entering the Strait of Hormuz was struck by a projectile on Monday, according to U.K. Maritime Trade Operations, a reminder that risks to shipping through the waterway remained elevated.

BP drew a notably upbeat assessment from Barclays. Analyst Lydia Rainforth wrote that BP could be in a materially stronger financial position faster than some investors expect, with war-induced high oil prices, exceptional refining margins and simplification efforts helping the company’s deleveraging. Barclays projected BP’s total net debt obligations falling to between $36 billion and $40 billion by the end of the year, from $54 billion at the end of the second quarter. Alongside falling gearing, that trajectory would contribute to a financial reset and help rebuild investor confidence, Rainforth wrote. She also cautioned in a separate note that BP’s management should not prioritize an immediate increase in shareholder returns, including a resumption of the quarterly buyback, arguing instead that securing financial and operational performance over the next year was the best path to long-term shareholder value. BP shares had closed Monday at 542.90 pence.

Shell’s near-term outlook drew an upgrade from Baader Helvea, where analyst Frederic Lorec wrote that high energy prices and Shell’s agreement to acquire Canadian energy producer ARC Resources for about $13.6 billion, announced in April, had improved the company’s prospects. Baader Helvea raised its 2026 earnings-per-share forecast for Shell to $5.76 from $4.45, and its 2027 estimate to $5.57 from $4.48. The upward revision was driven largely by higher oil price assumptions and additional barrels from ARC. Shell shares traded 0.6% higher at 3,511 pence.

In Asia, Affin Hwang IB analysts Ong Tze Hern and Peggie Wong wrote that lower system access charges under Malaysia’s Corporate Renewable Energy Supply Scheme were expected to accelerate renewable energy project deployment. The charge is to be reduced to 0.14 ringgit per kilowatt-hour from 0.20 ringgit, improving project economics and potentially bringing forward engineering, procurement, construction and commissioning awards. To qualify, projects must begin operations by the end of 2028, which the analysts said could prompt construction to start by the first half of 2027. Affin Hwang maintained an overweight rating on Malaysia’s renewable energy sector and named Solarvest and Samaiden as key beneficiaries.

European Central Bank economists wrote in an economic bulletin that the jump in eurozone energy prices this year due to the Middle East conflict had been smaller in scale than the 2021-22 price shock, helped by a softer link between wholesale prices and consumer bills. The impact of wholesale gas prices on wholesale electricity prices had been damped by a shift toward electricity generated from renewables, they wrote. The pass-through of wholesale prices to retail prices had sped up for gas overall, but less intensely for electricity, with variation among countries remaining in both cases. “This implies that wholesale energy price dynamics require close monitoring, as their passthrough to consumer prices remains an important source of near-term volatility in inflation,” the bulletin added.