European oil and gas producers such as Shell PLC (LSE:SHEL, NYSE:SHEL) and BP PLC (LSE:BP.) are enjoying a windfall from higher crude prices, but analysts are increasingly questioning how much further the sector can run after a strong rally this year.
JPMorgan said European exploration and production stocks have risen by an average of 53% since the start of 2026, leaving valuations more finely balanced despite continued support from elevated commodity prices. Shell and BP shares are up 17% and 23% respectively in the year to date.
The US bank said current-year cash flows remain well underpinned by strong oil prices, physical crude premiums and disruption-related pricing following tensions in the Middle East.
However, with much of that upside already reflected in share prices, the sector is becoming increasingly vulnerable to any signs of de-escalation.
The current assumption of JPMorgan's commodities team is that the Strait of Hormuz reopens during June, but every additional month of disruption is estimated to add around $20 per barrel to year-end Brent forecasts.
Citi also sees risks skewed towards higher prices. Analyst Alex Saunders said hopes of a quick US-Iran agreement have faded as negotiations remain divided over issues including control of the Strait of Hormuz and Iran's nuclear programme.
Brent crude has rebounded from around $91 to $98 per barrel as geopolitical tensions intensified and hopes for a ceasefire deal were tested.
Citi's base case assumes a gradual return of Strait shipping flows during the third quarter, but said inventories remain unusually tight beneath the headline figures.
Crude and fuel inventories across Asia excluding China are already below five-year averages, Saunders noted, creating the potential for prices to remain elevated even after shipping routes reopen as stocks are rebuilt.
For investors, JPMorgan said the key question is increasingly shifting from commodity price upside to how effectively producers convert stronger cash flows into free cash flow and shareholder returns.
