Key Concepts
- US Shale Peak: The anticipated decline in production from major US shale basins (Permian, Bakken, Eagleford), ending a 15-year period of driving non-OPEC supply growth.
- OPEC+ Policy: The impact of OPEC+’s decision to return barrels to the market in 2025, initially causing price volatility.
- Non-OPEC Supply Peak: The broader expectation that global non-OPEC oil production will peak in 2026.
- Spare Capacity: The limited spare capacity within OPEC (estimated at 1.4-4 million barrels per day), potentially exacerbating supply-demand imbalances.
- LNG Buildout: The significant expansion of Liquefied Natural Gas (LNG) export facilities in Canada and the US, driving demand for natural gas.
- Free Cash Flow Yield: A metric used to evaluate the profitability of energy stocks, particularly in the context of share buybacks.
- Venezuela Potential: The limited near-term impact of potential Venezuelan oil production increases due to infrastructure challenges and investment hurdles.
- Pathways Initiative: A Canadian initiative involving significant industry investment in carbon sequestration.
Oil & Gas Market Outlook: 2026 and Beyond
Introduction
This discussion between Charlotte Mloud of investingnews.com and Eric Nuttle, partner and senior portfolio manager at 9point Partners, analyzes the oil and gas market performance in 2025 and forecasts trends for 2026. The conversation centers on supply dynamics, demand growth, geopolitical factors, and investment opportunities.
2025 Market Review
2025 was characterized by significant volatility in the oil market, driven by factors including President Trump’s influence, tariff uncertainties, and, most importantly, OPEC+’s decision to increase production. Oil prices ultimately fell by approximately 18-19% during the year. Despite this price decline, energy stocks performed surprisingly well, with 9point Partners achieving an 18% return, demonstrating successful navigation of the challenging market conditions.
Supply-Side Dynamics: The Peak of Non-OPEC Production
A key theme for 2026 is the anticipated peak in non-OPEC oil production. US shale production, which has accounted for 117% of non-OPEC supply growth over the past 15 years, is maturing. The Permian, Bakken, and Eagleford basins are either plateauing or declining. The EIA recently forecasted a peak in US shale production, validating this trend. While Canada and Brazil are experiencing some growth, most other oil-producing nations are in mature stages of production. Energy Aspects research confirms that non-OPEC production is expected to peak in 2026. This is significant because non-OPEC production represents approximately two-thirds of global oil supply.
Demand & OPEC’s Role
Global oil demand is projected to grow significantly, potentially reaching 120-134 million barrels per day by 2050 (depending on the source), up from the current 106.5 million barrels per day. With non-OPEC supply peaking, the onus will fall on OPEC to meet this growing demand. However, OPEC’s spare capacity is limited, estimated at only 1.4-4 million barrels per day, representing just over one year of demand growth. This limited capacity suggests a potential supply-demand imbalance in the future. The market is currently absorbing the barrels released by OPEC in 2025, but a “digestion period” is underway, anticipating future supply constraints.
Oil Price Outlook & Investment Strategy
Nuttle believes the oil market is bottoming, despite the anticipation of a supply glut. He argues that the market is discounting known factors and looking ahead to the implications of peaking non-OPEC supply and normalizing OPEC spare capacity. He suggests a second-half story for oil, with potential for a multi-year bull market beginning in 2026/2027. Calling an exact price is considered “a mug’s game,” but the fundamental outlook is positive. He notes that oil is currently the cheapest commodity on the planet, and false narratives (particularly those promoted by Donald Trump) have created a false sense of complacency.
Natural Gas: A Bullish Outlook
Nuttle expresses strong bullishness on natural gas, particularly due to the ongoing buildout of LNG export facilities in Canada and the US. US demand is expected to grow by 3 billion cubic feet per day in 2026, with an additional 1 billion cubic feet per day from the second phase of LNG Canada’s ramp-up, totaling 4 billion cubic feet per day. The core bullish thesis rests on the substantial capital investments made in LNG infrastructure and the global demand for natural gas. The marginal cost of supply in the US is around $4 per MCF, incentivizing production in basins like the Haynesville. At $4, natural gas stocks offer attractive valuations, with some companies trading at a 14% free cash flow yield.
Investment Opportunities: Canadian Energy Stocks
Nuttle favors Canadian energy stocks, particularly those with significant production close to growing demand centers (LNG facilities in the Gulf Coast and data centers in the Northeast US). He highlights the potential for share buybacks, with companies able to repurchase up to 45% of their shares over a five-year period at a $70 oil price. He emphasizes the importance of companies with long-lived reserves (40+ years) and the compounding effect of buybacks. Recent sell-offs, triggered by events like the Venezuela narrative, present buying opportunities.
Venezuela: Limited Near-Term Impact
The potential for increased oil production from Venezuela is viewed as largely “noise” for the market. Despite rhetoric surrounding potential investment under a new administration, significant challenges remain, including low oil prices (making investment unattractive), dilapidated infrastructure, a lack of skilled labor, and a pipeline network requiring $100 billion in investment. ExxonMobil has publicly deemed the country “uninvestable.” While some modest production increases are possible in the short term (a few hundred thousand barrels per day), a substantial increase is unlikely before the 2030s.
M&A Activity
Nuttle anticipates continued M&A activity in the energy sector, driven by the inventory challenges faced by US shale producers. Canadian oil sands companies, with their abundant reserves, are potential acquisition targets.
Impact of Mark Carney & Canadian Policy
While there has been an improvement in tone from the Canadian government under Mark Carney, Nuttle expresses frustration with the lack of concrete action. He criticizes the “Pathways Initiative” and the focus on carbon sequestration, arguing that there is no market demand for lower-carbon intensity oil and that the initiative diverts capital from essential production.
Concluding Remarks
Nuttle concludes that the contrast between near-term market expectations (a supply glut) and the medium-term outlook (peaking non-OPEC supply, limited OPEC spare capacity, growing demand) is unprecedented. He encourages investors to focus on the long-term fundamentals and to recognize the potential for significant upside in both oil and natural gas prices. He believes the current environment presents a target-rich opportunity for investors willing to look beyond short-term volatility.
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