Energy: Slowing Demand and Ample Supply Will Weigh on Oil Prices

Bearish oil signals permeate the 2026 outlook. OPEC+ production surveys showed it pumped roughly 29 million barrels per day in November, little changed from October. The group confirmed that it’s pausing the unwinding of production cuts next quarter, following production surges in prior quarters this year. The United States imposed sanctions on Russian national oil companies and Venezuela. This factor, coupled with geopolitical premiums, helped support a price that hugged the $60 WTI benchmark through most of the prior quarter.

We think the market’s priced in these and any supply losses from Nicolas Maduro’s ouster, and strong supply will meet slowing seasonal demand amid a real supply glut risk. Excess supply means discounted oil stocks will likely get even cheaper next year. Rystad expects a crude surplus of 1 million barrels per day by the end of this year, and that figure may only widen by next quarter. So oil prices will likely move lower into next year.

Global capex should decline by a low-single-digit percentage, which will hurt oilfield services stocks. Even so, offshore investment should fall less than shale investment, which is why we like 4-star SLB relative to other names. In the longer term, the market will absorb the excess crude oil supply, and the long-term demand drivers underpinning our $65/bbl Brent oil price forecast will prevail. We like 4-star Diamondback for quality and Devon for price.

Accumulating crude production and slowing seasonal demand mean the WTI benchmark could fall below the $55/bbl watermark early next year. A tightening gas supply picture is shifting sentiment. While drilling levels remain rangebound, fundamentals may improve, which could help production and in turn, capital spending. Companies like Expand have also cleared previously elevated drilled but uncompleted well inventory.

Top Energy Sector Picks

Devon Energy

• Fair Value Estimate: $53.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

Devon DVN stands to materially benefit from its business optimization plan, capital recycling from divestitures, lower taxes from the One Big Beautiful Act, and continued low-cost production from its crown jewel Delaware asset. In turn, we believe Devon trades at a highly attractive 14% yield to 2025 free cash flow. Strong free cash flow generation, coupled with its strong balance sheet, should allow Devon to return well over 50% of its free cash flow to shareholders, including $200 million-$300 million in undervalued repurchases per quarter.

Diamondback Energy

• Fair Value Estimate: $193.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

In an industry under heavy scrutiny for its use of billions of dollars of investor capital, Diamondback FANG is one of the few US E&Ps to consistently allocate capital effectively. The firm has completed several exceptional acquisitions over the past few years, and all have followed a blueprint to add high-quality assets within a well-defined Permian Basin footprint. While we continue to see near-term oil price uncertainty as OPEC+ releases idle capacity into the market, we expect the market will absorb the incremental barrels over the long term. Diamondback stands to gain the most from an oil price recovery due to its commitment to low-cost production.

SLB

• Fair Value Estimate: $50.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

SLB SLB is among the cheapest stocks in our global energy coverage with a moat. Its multiple trades in line with peer services firms, but it deserves a premium given its scale, competitive position in services markets, and technology. These factors position SLB to outperform peers. SLB’s offshore segment outside North America boasts a growing project opportunity set that could exceed $100 billion annually over the medium term. SLB’s digital-related revenue is also highly accretive and more resilient to cyclical headwinds. We expect digital revenue can more than double by the end of 2025 to $3 billion and possibly climb to $4 billion by the end of the decade.