Many analysts now expect them to average $85 or more in 2026; some anticipate $120 a barrel if shipping attacks in the Strait of Hormuz continue.
Brent crude was forecast to fall below $60 a barrel, down from $68 in 2025 and $80 in 2024, amid a “super glut” in supply. THIS YEAR was supposed to be miserable for oil companies. Instead Donald Trump’s war in the Gulf has propelled prices into triple digits. On September 11th Saudi Arabia shut its East-West pipeline, an alternative route for its oil, after a drone attack.
Because governments want to bolster domestic production, farm-down deals—in which a national oil company funds a foreign major’s exploration in exchange for a stake—are also becoming more common, partly. Capital expenditure did rise after Russia’s invasion of Ukraine pushed oil above $120 a barrel, but cashflow grew faster (see chart 2, top panel). In the 18 months or so before the Gulf war, as prices fell, they turned back to borrowing to keep shareholder distributions steady and fund committed capital expenditure (see chart 2, bottom panel). In the second quarter of 2026 the five largest majors—ExxonMobil, Chevron, Shell, BP and TotalEnergies—cut their combined net debt by $36bn, or nearly 20%. The majors had announced a combined 11% cut in shareholder distributions, mostly through cancelled buyback programmes, notes Alastair Syme of Citigroup, a bank. Aggregate cash-on-hand at the majors barely budged between the fourth quarter of 2025 and the second quarter of this year. Executives have been at pains to reassure investors that most of the 2026 windfall will trickle down to them, not into new projects. Rather than bidding for formal licences and committing capital upfront, they have been amassing huge tracts of land, then scanning them with artificial-intelligence tools to look for places to drill (see chart 3).
The bonanza follows years of shareholder-enforced restraint, after a spending spree collided with a price collapse in the mid-2010s. The surplus went mostly to debt repayment and payouts to shareholders rather than on new wells. Much of the capex increase, in turn, reflected inflation in drilling and service costs rather than a genuine surge in activity. This time, though, oil firms may have to do more with their towering piles of cash. The Gulf war could thus set the stage for a flurry of exploration and dealmaking that shapes the rest of the decade and beyond. Oil companies have so far spent their latest windfall largely on paying down debt, rewarding shareholders and, at the margin, increasing output from existing assets. Take debt first. Oil companies used much of the cash that arrived following the invasion of Ukraine to shore up their balance-sheets. Now they are deleveraging once again. Smaller firms, which typically have bigger debt burdens, have been even more focused on lightening them. Another priority for oil firms has been lining their owners’ pockets. On the eve of the Iran war many investors were bracing for leaner times. Special dividends doled out by smaller firms, often debt-funded, looked unsustainable. The oil-price bonanza has changed that. All the majors bar BP have either held dividends and buybacks steady or increased them. Small players are now offering not just special dividends but recurring ones, too. After debt reductions and shareholder pay-outs, little has been left for investing in expansion. The only exceptions are Diamondback, a fracking giant, and large unlisted firms, such as Continental Resources and Hilcorp Energy, which have funded quick-turnaround projects like completing existing wells in America’s shale basins. The slow way to gain new assets is exploration. Budgets aren’t rising yet, but there are other signs the majors are on the hunt. Transactions may well multiply next year. The majors have now digested the big acquisitions they made in the early 2020s, notes Dan Pickering of Pickering Energy Partners, an investment firm. Stronger balance-sheets will make it easier to splash out on deals. Private-equity firms, commodity traders and outsiders seeking resources beyond the Gulf—the Japanese among them—are hunting for assets, too. And America will have less than two years left of a deal-friendly, drill-happy administration.
Replacing that is getting harder: the paucity of recent discoveries means daily oil-and-gas production could fall by 31m barrels by 2040—nearly a fifth of today’s total. As many as 70 companies are at risk of seeing their output fall by half, reckons Wood Mackenzie, a consultancy. Oil prices crashed in June, when America and Iran reached a tentative deal. But renewed fighting has since sent them soaring; they could stay high for months, making new projects more viable. And those projects are becoming essential. Every two years the depletion of oilfields costs the world one Saudi Arabia’s worth of crude supply.
Earlier in the war such caution was warranted.
