(MENAFN- Khaleej Times)

Oil prices have been range bound‭, ‬with Brent crude well off the year's highs‭, ‬and some forecasters predicting the oil market could be oversupplied well into next year‭. ‬

Earlier this month‭, ‬Khaleej Times‭ ‬spoke with Dr Daniel Yergin‭, ‬one of the world's foremost authorities on energy‭, ‬international politics and economics‭, ‬to get his views on the direction of oil prices‭, ‬energy‭ ‬trends and what to watch out for in 2026‭. ‬

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Dr Yergin is vice chairman of S&P Global and chairman of S&P Global's CERAWeek energy conference‭. ‬He is also a Pulitzer Prize winning author‭. ‬His most recent book is The New Map‭: ‬Energy Climate and the Clash of Nations‭. ‬

Excerpts from an interview with Dr Yergin‭: ‬

Various forecasters expect the oil market could be oversupplied by as much as several million barrels per day next year. Nobody can seem to agree on how much oversupply there's going to be. Where do you see the price of oil heading through 2026 and what factors will affect it?

Dr Yergin‭:‬ There's a very vigorous debate about the degree to which the oil market is oversupplied‭, ‬but right now‭, ‬certainly supply exceeds demand‭, ‬and I think it's going through a process of adjustment‭. ‬As always‭, ‬economic fundamentals will be very important‭, ‬but so will politics and events‭, ‬and one critical question is what's going to happen with Russian oil‭?‬ ‭ ‬To what degree will it or will it not be restricted in the marketplace‭? ‬

Another critical question for the oil market is what is happening to Chinese demand‭? ‬Is it still growing or is it flattened out‭?‬‭ ‬I think we'll have much greater clarity into that in 2026‭. ‬

One thing that makes it difficult on Chinese oil is how to separate out demand from what's going into strategic stocks‭, ‬and there's no clarity on that‭. ‬That's one of the reasons for the debate about Chinese oil demand‭. ‬

It may be too far to say we're in a post-globalisation world but certainly the globalisation that we've known for the last three and a half decades is over‭. ‬We used to have a global oil market‭. ‬That ended with Russia's invasion of Ukraine‭, ‬and we now have a partitioned oil market‭. ‬We're now in a world of increased sanctions‭, ‬tariffs‭, ‬protectionism‭, ‬and really‭, ‬uncertainty in global trade‭. ‬So‭, ‬in a world like that‭, ‬the kind of ability to predict is more difficult because you have these non-economic factors at work‭. ‬

For now‭, ‬with caveats‭, ‬we see Brent averaging around‭ $‬60‭ (‬per barrel‭) ‬in 2026‭ ‬and back at about‭ $‬65‭ ‬in 2027‭. ‬

What are the biggest risks to the oil market and what is your outlook for it?

Dr‭. ‬Yergin‭:‬ ‭ ‬We have to separate it into two parts‭. ‬One is economic‭, ‬and it basically is the level of economic growth in the world‭. ‬Right now‭, ‬the strength of the US economy is ahead of other economies‭. ‬I think the second risk is Chinese demand‭, ‬for sure‭. ‬And then‭, ‬of‭ ‬course‭, ‬there's geopolitics‭, ‬political events‭, ‬conflict‭, ‬although those are things that you can't predict‭. ‬They always come as surprises‭. ‬

I think that the growing tension between the US and China is a factor that affects the entire world economy‭, ‬including energy markets‭. ‬

There's another uncertainty‭, ‬something else to really keep your eye on in 2026‭. ‬That is‭, ‬what happens to US oil production‭. ‬Obviously‭,‬‭ ‬the US oil is at a very high level‭, ‬but is shale flattening out or not‭? ‬I think we'll have much greater clarity on that in 2026‭. ‬

Certainly US oil production has grown to 13.6 million barrels a day, but there are other oil producers adding new oil to the mix, right? You have Guyana, Brazil and Canada.

Dr‭. ‬Yergin‭:‬ New supplies will certainly be coming in from outside of the OPEC‭+ ‬framework‭, ‬but what happens to US production in 2026‭ ‬will have an impact on the psychology of the market‭. ‬

I think OPEC‭+ ‬is responding with considerable flexibility to the market‭. ‬And‭, ‬you know‭, ‬on a month-to-month basis‭, ‬it is navigating the return of unused capacity‭. ‬OPEC‭+ ‬and the key producers in the Gulf are determined to regain market share‭, ‬and that they're doing in a very flexible‭, ‬market sensitive way‭. ‬What's striking is the acuity with which they're bringing back supplies‭. ‬They are paying very close attention to the dynamics of the market‭. ‬

We used to see oil in a‭ $‬75‭ ‬to‭ $‬90‭ ‬a barrel range a couple years ago‭. ‬But now it's basically in a‭ $‬60‭ ‬to‭ $‬75‭ ‬range‭. ‬It could go lower‭, ‬but I think we would see OPEC‭+ ‬respond‭. ‬

Prices could go below that level‭, ‬but I think then there'll be responses to that‭. ‬Any persistent prices below that would have a very big impact on US production because it is the most price sensitive production in the world‭. ‬

Natural gas is becoming more important in the global marketplace. Where do you see both prices and supply heading?

Dr‭. ‬Yergin‭:‬ We were just about at the 10th anniversary of the very first shipment of US LNG‭ (‬liquified natural gas‭) ‬from the United States‭, ‬and now in 10‭ ‬years‭, ‬the US has become the biggest exporter of LNG‭. ‬ ‭ ‬

A lot more capacity is being brought on‭, ‬particularly along the US‭. ‬Gulf Coast‭, ‬and the LNG market will certainly see abundant supplies‭. ‬The question is what will be the demand for it‭? ‬I think prices will come down for LNG as this additional supply comes into the market‭. ‬It looks like Europe is going to permanently slam the door on Russian gas‭, ‬so it will continue to be bottled up‭,‬‭ ‬which means a big LNG market‭. ‬LNG will really be competing‭, ‬particularly in Asia‭, ‬where it will be battling to take market share away from coal‭. ‬It's amazing to see something that used to be a local or regional commodity become a truly global commodity‭. ‬A lot of it has been driven by this very rapid expansion of US LNG‭. ‬Of course‭, ‬Qatar is increasing capacity and LNG is going to come out elsewhere‭. ‬

I think all the Gulf countries are evaluating what role they should have as global gas producers‭. ‬

The other thing is that‭, ‬particularly the UAE and Saudi Arabia are working strenuously to become locations for these massive AI‭ ‬data centres and to take advantage particularly of low-cost electricity‭. ‬

How do we get the electricity supply for all of these data centres around the world?

Dr‭. ‬Yergin‭:‬ There's a potential shortfall of electricity in the United States to supply all the data centres‭. ‬Electricity is the key to the data centres‭. ‬That's where the big constraint is‭, ‬and that's why I think we're going to see that wind and solar will be important‭. ‬This is one of the reasons for the rebound in natural gas‭, ‬which will also be important‭. ‬

I'm focused right now on copper because it is a metal of electrification‭. ‬We have our new study coming out in January called 'Copper in the Age of AI'‭. ‬And if electricity is a constraint on AI‭, ‬copper is a constraint on electricity‭. ‬

The world is not producing enough copper to meet the additional needs for electricity‭. ‬Something to watch in 2026‭ ‬is what the matchup between electricity and AI will be‭. ‬Where is the electricity going to come from for AI‭? ‬People have talked about energy security in terms of oil and gas‭, ‬but now the question is really also about energy security in terms of electricity‭. ‬

And would the biggest growing energy source for data centres be gas?

Dr‭. ‬Yergin‭:‬ It's going to be a mixture‭, ‬but gas is going to play a much bigger role in electric generation than what was generally thought a couple of years ago‭. ‬In the US‭, ‬the Biden administration wanted to get hydrocarbon fossil fuels out of electric generation by 2035‭. ‬What we see now is a huge step up of natural gas going into electric generation‭. ‬The need for electricity for AI is one of the‭ ‬main reasons we're also seeing a rebound in interest in commitment to nuclear power‭. ‬And if I can say something for your local readers‭, ‬it turns‭ ‬out that the UAE's decision to build four nuclear reactors made a lot of sense at the time‭. ‬It now makes even more sense‭. ‬It turns out it was a brilliant strategic decision‭. ‬

I look forward to your CERAWeek conference in Houston every year because the most important themes impacting the energy sector are discussed there. What topics are emerging as you prepare for your next conference this coming March?

Dr‭. ‬Yergin‭:‬ The number one topic is clearly AI and energy‭, ‬and where is the electricity going to come from to power AI‭. ‬One big question is‭ ‬how much of those data centres will be constructed in the Gulf countries to take advantage of inexpensive electricity‭. ‬Another big question is the role of LNG‭, ‬as we see capacity continues to expand‭, ‬and what will be the balance between supply and demand in that market‭. ‬And of course‭, ‬as always‭, ‬the oil market will be very much on people's minds as we head into 2026‭. ‬I think a fourth one I'll mention‭, ‬is the overall role of technology and innovation across the energy industries‭.‬ ‭ ‬We expect to match last March‭, ‬when we had 250‭ ‬start-ups at CERAWeek‭. ‬We will also have the major policymakers there‭, ‬and everybody will be listening very closely to what they say‭, ‬especially the US policymakers‭. ‬

How to invest in energy?

There are many ways to invest in energy‭, ‬but investors looking to add to their stock market holdings should weigh that oil prices could be lower in 2026‭. ‬

Investors can buy exchange traded funds that represent oil and gas‭, ‬or invest in stocks in oil majors like Total and Exxon Mobil‭. ‬There are also ETFs representing different parts of the sector globally and on a regional basis‭. ‬

“Demand has been the part of this equation that's been pretty solid‭. ‬There's just too much oil‭. ‬The‭ (‬US energy equities‭) ‬sector is still up on the year‭, ‬which is good‭, ‬given that oil has traded off‭,‬”‭ ‬said Daniel Pickering‭,‬ founder and chief investment officer at Pickering Energy Partners‭. ‬“Strong gas fundamentals have helped‭. ‬There's also a bit of a glow around power‭. ‬That's helped‭. ‬But it does make the‭ (‬oil-related‭) ‬stocks a little precarious here‭.‬”‭ ‬

Pickering said value investors have been willing to look through weakness in oil-related stocks because the prices are relatively cheap‭, ‬but they could still move lower‭. ‬

“The US‭ [‬production‭] ‬still looks like it will grow next year by about 2‭ ‬per cent‭. ‬OPEC‭+ ‬is bringing barrels back‭. ‬We haven't found a price yet that is reducing supply‭,‬”‭ ‬Pickering said‭, ‬adding views on supply range widely‭, ‬with some forecasters expecting a large daily surplus‭. ‬

OPEC‭, ‬meanwhile‭, ‬has said it is taking a balanced approach to the market‭. ‬It announced it is bringing back 137,000‭ ‬barrels a day‭ ‬in December and pausing the return of supply in the first quarter‭. ‬

S&P Global expects the average price of Brent crude to be‭ $‬60‭ ‬in 2026‭ ‬and rise back to an average of‭ $‬65‭ ‬in 2027‭. ‬Brent was traded just above‭ $‬63‭ ‬per barrel earlier this week‭. ‬

There are ETFs for other energy sectors‭. ‬Investors interested in nuclear companies can find ETFs or stocks of those securities‭, ‬or even dig further down the chain to uranium producers‭. ‬

There are also liquified natural gas companies and ETFs for LNG companies‭. ‬Another way to invest is to buy power producers or the infrastructure companies that build pipelines‭. ‬For clean energy‭, ‬there are renewable stocks and ETFs for wind and solar companies‭. ‬

“Power is a very robust theme right now‭, ‬but that's tied to AI‭, ‬so you're essentially playing the AI cycle when you're playing those names‭. ‬Then you've got the traditional oil and gas companies where the oil side looks weak‭, ‬and the gas side looks strong‭. ‬My view is you should‭ ‬be patient‭. ‬You should be preparing to add to oil stocks on weakness‭. ‬The gas stocks are more attractive‭, ‬you can play them now‭,‬”‭ ‬said Pickering‭. ‬“The majors are going to be safer‭. ‬They've got good yields‭.‬”‭ ‬

Pickering said investments associated with power‭, ‬like nuclear or utilities‭, ‬are a bit more expensive‭. ‬“Gas is in the middle‭, ‬more expensive than oil but cheaper than power‭. ‬Then you've got oil names which have and probably will struggle for a bit‭,‬”‭ ‬he said‭. ‬But he adds‭ ‬investors should have some cash in hand because there could be some potential bargains to be had in 2026‭,‬‭ ‬and oil fundamentals will ultimately improve‭. ‬

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