Postcard
- Sentiment among US oil executives is cautious, with many expecting Brent crude to fall into the US$50-60 range as OPEC+ gradually restores supply amid softer demand.
- The natural gas market, in contrast, looks buoyant, underpinned by AI-driven datacentre power demand, coal-to-gas switching and LNG project ramp-ups.
- Geopolitical tensions – particularly the Israel–Iran conflict – remain a material tail risk, capable of injecting short-term volatility or even structural disruption into global oil flows.
Paul Gooden, Portfolio Manager
I recently returned from a trip to Texas, where I toured Permian Basin operations and met with companies across the energy value chain. The tone on oil was subdued. Executives anticipate a period of oversupply through the second half of 2025, driven by the unwinding of OPEC+ production cuts and seasonally weaker demand exacerbated by a macroeconomic drag. A growing consensus points to the price of a barrel of Brent crude heading towards the US$50-60 range, with shale operators already preparing for reduced cashflows at these levels.
Oil ‘air pocket’ meets geopolitical tail-risk
As a team, we agree that the oil market is likely to hit an ‘air pocket’ over the remainder of 2025. However, do not underestimate the upside tail risks. Most notably, the Israel–Iran conflict remains a material source of potential volatility. News of a tentative peace agreement has led to some unwinding of the geopolitical risk premium which was briefly embedded into the oil price. But the risk of renewed escalation persists and markets could tighten significantly if strategic infrastructure or tanker routes are disrupted.
Looking ahead to 2026, the full-year effect of OPEC+ supply restoration and incremental production from Brazil and Guyana reinforces the oversupply narrative. The floor for prices will likely be set by the short-cycle response from US shale operators, which have already begun to reduce activity in anticipation of lower prices.
Positive on gas
In contrast, the US natural gas outlook is structurally more constructive. US natural gas demand is set to boom, driven by the start-up of new liquefied natural gas (LNG) terminals which will ship cheap US gas to global markets, and by hyperscale datacentres and AI infrastructure, which are becoming ever more important sources of power demand. The US gas market could grow from 105 bcf/d1 today to c.130 bcf/d by 2030. This underpins our constructive view on Henry Hub – a primary benchmark for US natural gas prices – into 2026.
Investment positioning
Given the short-term risks to oil, we favour the following positioning in global natural resources equities2:
- Underweight energy
- Overweight precious metals and agriculture, where supply constraints and macroeconomic tailwinds are more visible
But there are still opportunities in energy, particularly in our view in the following:
- The US natural gas value chain (upstream, midstream, equipment)
- International and offshore E&P (exploration & production) companies, which benefit as US shale peaks
- ‘Self-help’ equity stories with company-specific catalysts
Although we favour an underweight in energy, we think investors should remain flexible, ready to lean back into this sector if oil prices do fall into the US$50-60 range. At these levels, market rebalancing may occur, and the narrative could shift towards longer-term undersupply given shale exhaustion (public and private shale E&Ps told us that Tier-1 drilling locations were dwindling) and the removal of excess OPEC spare capacity.
Finally, on the ground in the Permian we noted progress on sustainability. Diamondback’s ‘e-frac’ site – powered by electricity instead of diesel – reflects a broader push to reduce emissions intensity3. Encouragingly, this appears to be gaining traction across operators.
1 Billion cubic feet per day.
2 Opinions based on current market conditions; subject to change without notice and without any obligation to update.
3 No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided. Security selected as an example of a company that is improving its operational environmental footprint. This is not a buy, sell or hold recommendation for any particular security. To evaluate the outcome of the strategy, see long-term performance. For further information on specific portfolio names, please see the Important information.
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