- Oil prices perking up in response to rising geopolitical risks in early 2026
- Relief from oversupply fears as OPEC+ pauses its production increases in 1Q26
- Oil major share prices remain resilient despite moderate commodity price environment
- Oil majors represent potential hedge against market uncertainties
Related Insights
Rising geopolitical noise in early 2026 a boost for oil prices. 2026 has started on somewhat of a strange note, with US asserting its hegemony not only in its immediate neighbourhood, but well across the world, potentially challenging China’s access to fossil fuels and rare earths. Events surrounding Venezuela, Greenland, and Iran have resulted in a fair bit of uncertainty, with developments in Iran especially leading to enhanced support for oil prices in our opinion. As things stand, any escalation involving strikes on Iranian oil infrastructure or a threat to shipping routes could push oil prices sharply higher (USD80-100/bbl). A full closure of key transit chokepoints like the Strait of Hormuz remains a very extreme scenario but the possibility alone would make traders nervous. Thus, we see upside risks for oil prices as this crisis evolves. Our forecasts for 1H26 already include a higher geopolitical risk premium.
OPEC+ pause in 1Q26 provides downside support in near term. Fundamentally speaking, the oil price environment has been quite muted since 2H25. Fears of excess supplies have intensified, driven by faster-than-expected unwinding of OPEC+ production cuts. However, at its latest monthly meetings, OPEC+ has announced that they would pause production increases in 1Q26, citing seasonally weaker market conditions. This delays the full reversal of the voluntary adjustments to the latter part of 2026 and provides some relief to the market, lifting oil price sentiment to an extent. While this is also a sign of acknowledgement from OPEC+ that a supply glut may be in the offing, the pause provides the group time to assess the impact of stricter Western sanctions on Russian oil majors. While Russian supplies can eventually be re-routed through non-sanctioned entities in the longer term, there could be some disruption in the short term as key buyers of Russian oil like India look at alternative sourcing, thereby keeping some Russian oil off the market.
Oil majors continue to outshine oil prices. We project Brent crude oil prices to average between USD62-67/bbl in 2026/27, a level that’s reasonable for the upstream and integrated players, as downstream operations are likely to see stronger spreads for middle distillates for a while, given Venezuelan heavy crude grades could get disrupted. While we now see upside risks to our conservative oil price projections being an additional catalyst to watch out for, share prices of global oil majors have outperformed oil prices over the last year or so, boosted by the steady return profile of valuations – high free cash flows and shareholder returns – and in some cases, a sharper pivot back to hydrocarbons. We expect more of the same to continue in 2026, with potential support from rising geopolitical uncertainties. The oil & gas space also acts as a relative safe haven amid any trade war related uncertainty and a weakening US dollar environment.
Figure 1: Global oil major share prices have been outperforming the oil price trajectory
Source: Bloomberg, DBS
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