Investing.com –  Morgan Stanley has turned more defensive on European mid-cap energy stocks, upgrading Portugal’s while keeping more cautious views on Spain’s and Austria’s , arguing that investors should prepare for a softer commodity price environment after this year’s rally.

The brokerage said it was “moving back to the defence playbook” as it expects prices to ease toward about $70 a barrel beyond 2026, making companies with resilient cash flows, lower capital spending requirements and stronger balance sheets more attractive than peers whose earnings depend more heavily on refining margins or cyclical recoveries.

Morgan Stanley upgraded Galp to “Overweight” from “Equal-weight” and raised its price target to 21.40 euros from 18.70 euros, saying the Portuguese company’s growing oil production, declining capital expenditure and falling leverage should allow it to maintain attractive shareholder returns even if crude prices weaken.

The bank also pointed to the potential restructuring of Galp’s downstream business as a catalyst that could support future shareholder payouts.

By contrast, the bank retained “Equal-weight” ratings on both Repsol and OMV.

For Repsol, Morgan Stanley said much of the upside from stronger refining margins had already been reflected in the share price. Although higher refining margins could support larger share buybacks in 2026 and 2027, the brokerage said the stock appears less defensive than Galp if commodity prices decline over the coming years.

The bank also remained cautious on OMV, saying the Austrian group’s acquisition of a larger chemicals business has largely been absorbed by the market while investors may have to wait for a clearer strategic direction under new leadership.

Morgan Stanley said it does not yet see sufficient near-term catalysts or a sustained recovery in chemicals markets to become more constructive on the stock.

Morgan Stanley’s revised positioning reflects a broader preference for energy companies capable of sustaining dividends and buybacks even under weaker macroeconomic conditions.

For Galp, the brokerage forecasts production to rise to around 139,000 barrels of oil equivalent per day by 2027 from about 111,000 currently, supported by Brazil’s Bacalhau project and lower capital expenditure requirements, helping reduce net debt while supporting dividend growth.

For Repsol, Morgan Stanley expects refining margins to remain supportive through 2026 but said sustained shareholder returns would become increasingly dependent on commodity prices and execution of company-specific initiatives, including potential upstream portfolio transactions.

For OMV, the brokerage said investors are likely to focus on developments in its chemicals business and the integration of Borouge Group International, while a prolonged downturn in chemicals margins would remain the principal downside risk.