Global Energy - 2026 Outlook

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Past performance does not predict future returns. 

2025 IN REVIEW

The year 2025 was characterised by a looser oil market balance, as robust non-OPEC supply growth coincided with OPEC+ returning withheld barrels to the market. Oil prices were weaker than in 2024, with Brent averaging $69/bl (vs $80/bl in the prior year), reflecting ample supply running ahead of demand growth. Natural gas prices also declined over the year, particularly in international markets, as inventories rebuilt and weather proved generally mild. Despite lower commodity prices, energy companies continued to generate strong cash flows and return capital to shareholders, supporting a broadly resilient performance from energy equities, albeit one that lagged the wider equity market.

The dominant themes for global oil and gas markets in 2025 were:

Reasonable oil demand growth, estimated at around 0.8m b/day, but down from earlier expectations thanks to weaker world GDP growth. Total global oil demand reached approximately 103.9m b/day, around 3.2m b/day above its pre-COVID peak. Demand growth was driven primarily by non-OECD economies, particularly India and other parts of South-East Asia, while China contributed only modestly (+0.1m b/day), no longer acting as the dominant marginal driver of global demand. Within the demand mix, petrochemical feedstocks such as ethane and naphtha, alongside aviation fuels, remained key sources of growth.

Global oil demand growth (m b/day)

Source: IEA; Guinness Global Investors, December 2025

A shift in OPEC+ strategy, as the group moved from supply restraint to a phased increase in production quotas. Between May and September, OPEC+ raised quotas by around 0.5m b/day per month, yielding a total quota increase of 2.5m b/day. Saudi Arabia and core Gulf members sought to enforce quota compliance among overproducers while maintaining market share. The brief escalation of conflict between Israel, Iran and the US in June temporarily lifted prices, Middle Eastern oil supply ultimately remained uninterrupted.

Strong non-OPEC supply growth, led by the United States, Brazil, Guyana and Canada. US shale production grew by around 0.3m b/day, supported by productivity gains despite ongoing capital discipline. Offshore Latin America was a major contributor, with Brazil’s pre-salt projects and Guyana’s Stabroek block delivering meaningful incremental volumes, while Canada benefited from efficiency gains in the oil sands. Overall non-OPEC supply growth reached approximately 1.6m b/day, contributing to the looser oil market balance.

International natural gas markets eased over the course of the year. International gas prices started 2025 at elevated levels following late-2024 tightness, but drifted lower as inventories rebuilt and the weather was generally mild (reducing heating demand). European and Asian liquefied natural gas (LNG) prices broadly tracked one another, with Europe continuing to attract Atlantic cargoes. By contrast, the US gas market tightened as LNG export growth and rising power demand drove Henry Hub prices a little higher.

Energy equities delivered positive returns in 2025, supported by disciplined capital allocation, strong balance sheets and continued shareholder distributions, despite lower oil prices. The Guinness Global Energy Fund returned +17.1% in USD, outperforming the MSCI World Energy Index, which returned +13.3%. Performance diverged meaningfully across subsectors and regions: integrated oil companies, particularly European majors, performed relatively well, while upstream E&Ps and energy services lagged due to their greater sensitivity to weaker commodity prices.

OUTLOOK FOR 2026

Oil remains a fundamentally cheap commodity, trading at a 100-year low versus the gold price. We enter 2026 with well-supplied oil markets, following OPEC+’s accelerated return of surplus capacity in 2025. Non-OPEC supply growth this year, led by Brazil and Guyana, is set to slow to broadly match global oil demand growth, implying that continued discipline from OPEC+ is needed to maintain market balance. That said, with OPEC+ spare capacity now back at a normalised level, the group has reduced scope to add barrels should supply falter elsewhere. Overall, we believe OPEC+ remains committed to defending a 'reasonable' oil price, accepting a lower price in the short-term (we forecast $65/bl for 2026), but still targeting a price of $80/bl+ when conditions allow. Against this backdrop, energy equities discount a conservative long-term oil price (mid-$60s/bl), leaving valuations attractive relative to underlying cash flow potential.

Oil demand growth is likely to be around 0.9m b/day (reaching 104.8m b/day) with the non-OECD +0.9m b/day and the OECD -0.1m b/day. Similar to 2025, China (at +0.2m b/day) will not be a dominant driver of demand growth. Even at $80/bl Brent (well above today’s spot price), oil remains highly affordable, representing 2.4% of 2026 world GDP (and well below the 3.8% seen in 2010 when oil last averaged $80/bl). We continue to see global demand growing until the early 2030s, reaching a peak of 108-110m b/day.

Non-OPEC supply growth is expected to slow to around 1.1m b/day in 2026, led by Brazil, Guyana, Canada and the US. US shale growth is likely to be modest (around 0.1–0.2m b/day at best), as capital discipline, declining rig counts and a focus on free cash flow constrain activity. Offshore Latin America is expected to be the largest source of incremental supply, while Canada continues to deliver steady, low-decline growth.

OPEC+ will focus on quota compliance to keep a balanced market, as they attempt to maintain market share at reasonable price. The group will keep a close eye on the situation in Iran and Venezuela, though any meaningful increased production from the latter in a post-Maduro world will require years of significant investment. Longer term, we believe that Saudi Arabia’s long-term objective remains to achieve a price as close to its fiscal breakeven of around $92/bl as possible.

Global natural gas markets remain broadly balanced, though gas infrastructure needs to grow to meet LNG/data centre/electrification needs. US gas demand will grow around 3-4 Bcf/day in 2025 due to power generation demand and rising LNG exports, but new supply is available and economic. Internationally, expanding LNG supply is likely to keep markets well supplied, assuming prices remain strong enough to incentivise continued expansion.

Energy equity valuations remain attractive with the MSCI World Energy Index on a price to book ratio (P/B) of 1.8x, versus the S&P500 at 5.5x. The relative P/B of energy vs the S&P500 remains more than two standard deviations below the long-term relationship.

P/B of the energy sector versus S&P500 

Source: IEA; Guinness Global Investors, December 2025

Most oil and gas companies continue to promote balance sheet efficiency over unconstrained growth, manifest in lower levels of debt and a return of free cash to shareholders. Assuming a $65 Brent oil price, we forecast an average free cash flow yield for our portfolio in 2026 of around 7.4%. At our long-term price assumption of $80/bl, the free cash flow yield rises to 10.8%.

Energy equities offer good upside if our oil price, profitability and free cash flow scenarios play out. We believe energy equities currently discount an oil price of around $67/bl. Adopting $80/bl Brent as a long-term oil price, we see around 40% upside across the energy complex.

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The value of this investment can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you invested.