Investing.com -- European utilities shares came under pressure late last year as unusually mild weather in November and early December raised concerns about downside risks to gas and power prices, prompting profit-taking after a strong 2025.
But such concerns have eased since the turn of the year, according to JPMorgan, as a return to more normal winter conditions has driven stronger gas demand, faster withdrawals from storage and a rebound in near-term gas and power prices.
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Gas storage levels have fallen sharply from November highs and are now around 60% full, their lowest level for this point in winter since 2022. This comes after storage was filled to just 83% at the start of the withdrawal season, compared with 95% a year earlier.
With colder-than-average temperatures forecast for February, “resilient demand, contingent on continuing cold winter weather, should support stronger gas and power prices in the near term, especially given the much lower base that withdrawals are being made from,” JPMorgan analysts led by Javier Garrido said in a note.
Spot gas prices, which fell to around €26 per megawatt-hour in December, have since rebounded by roughly 15% to around €30/MWh. Near-term forwards, including winter 2026/27 contracts, have also moved higher, though longer-dated prices remain broadly stable.
The forward curve is still in backwardation, reflecting expectations of a significant influx of new liquefied natural gas supply over the medium term, which analysts believes will leave longer-dated prices “effectively immune to near-term weather impacts.”
Carbon prices have also firmed, driven by stronger gas demand and the absence of any easing in EU emissions targets, although the introduction of the carbon border adjustment mechanism at the start of 2026 adds uncertainty further out.
Power prices across Europe have risen in line with gas, carbon and weather-driven demand, with the biggest moves seen in near-term contracts rather than in 2027 and beyond.
Despite the winter rebound, JPMorgan says its broader 2026 view is unchanged. It continues to see the year as a mixed one for European utilities after roughly 14% sector outperformance in 2025, citing downside risks to commodity prices, less compelling earnings momentum and fewer opportunities for positive surprises.
The bank remains cautious on gas prices later in the year, expecting seasonally weaker demand in the second and third quarters and a step-up in LNG supply to push prices toward the mid-€20s/MWh in the second half.
Against that backdrop, analysts prefer exposure to companies leveraged to the medium-term “Power Demand Recharge” while also offering stronger near-term earnings growth.
Its top picks remain RWE AG (ETR:RWEG) and SSE (LON:SSE), supported by power generation capacity additions at RWE and sector-leading, funded networks growth at SSE, with both also benefiting near term from higher volumes and spreads in flexible generation.
The bank continues to avoid stocks it views as fully valued and lacking earnings momentum, including Fortum (HE:FORTUM), Terna (BIT:TRN) and Severn Trent (LON:SVT).
