The Last Era of Oil? Supply-Side Stress, Market Repricing, and the Road to Sustainable Energy

Whilst this major geopolitical event has increased the price it has also given investors a reminder of a structural truth: that global oil supply is more fragile than headline spare capacity figures suggest. These price changes have coincided with the quiet shift in underlying capital flows of the energy system. The IEA estimates global energy investment reached 3.3 trillion USD in 2025 of which 2.2 trillion went into renewables, being energy grids and storage, nuclear and electrification, this is double that spent on oil, coal and natural gases (IEA, 2025a). Additionally upstream oil investment was estimated to fall 6 percent in 2025 which was the first decline since the pandemic in 2020 (IEA, 2025a). The closure of the strait of Hormuz has not only created a short term supply shock it has also exposed the realities facing the structure of the industry and its terminal value. Oil still matters , and it will for decades, but the broader market is changing in real time, and we must be aware of that. 

   2.Supply side stress: A thinner cushion than headlines suggest

Today’s supply picture is now defined by three major features;

The first is that concentration risk has intensified. Large amounts of upstream oil and gas investment is going towards the middle east with their share of global upstream investment being 20%, the highest on record (IEA, 2025a). Whilst this is efficient in the sense that more supply goes through one point allowing for further ease of distribution, the downsides of having such a large amount of global supply through one chokepoint have been exposed. 

The second feature is the questionable depth of  the reported OPEC (Organisation of the petroleum exporting countries) spare capacity. The relevant metrics are produced by two different bodies. OPEC report on Maximum Sustainable Capacity (MSC) which is defined as the average maximum production of oil that could be brought online within 90 days of an arbitrary starting date and sustained for a full year. The EIA, the independent US forecaster, calculates effective and surplus capacity by adjusting MSC for current disruptions and actual production. The EIA estimated OPEC surplus capacity at 4.6mb/d in 2024 (roughly 4% of global capacity), this was raised materially by roughly 0.3mb/d in 2025 as the EIA revised how it defined spare capacity (EIA, 2025a; EIA, 2025b). Even with this upward revision, structural constraints undercut the headline. A large amount of this deployable capacity is concentrated within Saudi Arabia and the UAE. Other countries within OPEC+ such as Nigeria, Libya, Venezuela and Angola have their outputs constrained by a number of factors including infrastructure decay, conflict, sanctions and reservoir decline, rather than simply by quota restraint. Thus despite this supposed 4.6mb/d cushion that the IEA and OPEC suggest exists it is in reality perhaps 2.5-3mb/d sitting in two countries on the western shore of the persian gulf.

The third defining feature compounds the second. Even the spare capacity that genuinely exists depends on a single transit route. According to the EIA, in Q1 of 2025 20.9mb/d of oil was passing through the Strait of Hormuz (EIA, 2025c), whilst the pipelines within the gulf states only have the capacity to sustain 4.7mb/d (EIA, 2025c). This figure is split between the East-West pipeline in Saudi Arabia and the Habshan-Fujairah line. Whilst Iraq, Kuwait, Iran, Qatar and Bahrain have no meaningful working alternative for the bulk of their crude exports, and we are seeing this right now with the US naval blockade restricting Iranian crude exports. Thus regardless of how much capacity we may potentially have it is only as valuable as the export route that can carry it.

The implications of this are reflected in the wide range of plausible price outcomes. The market is facing a bimodal price distribution, with the path forward being almost entirely dependent on the conflict. The first outcome is a prolonged disruption which could keep Brent above US$100/b through 2026. Alternatively a faster resolution could expose the market to underlying oversupply dynamics that the war has temporarily masked and price more in the tune with a peak of US$115/b in Q2 (EIA, 2026b), easing to US$90/b in Q4 and averaging US$76/b in 2027. A range this wide makes long-cycle project economics difficult to underwrite and it is this uncertainty that is shaping the way that major oil companies are deploying capital.

   3. How are the markets repricing? Capital discipline vs growth

How are major oil companies choosing to deploy capital? Unlike in past cycles they are choosing capital restraint and shareholder returns over leaning into the upswing. 

To understand this we will look at four major Oil players, BP, Shell, Exxon Mobil and Total Energies. BP has cut guided low carbon transition capex by more than 5US billion a year, this capital has instead been redirected upstream into oil and gas. It has set a new capex ceiling of 13-15US billion in 2027, with its end of 2027 targets being 20US billion in divestments and 14-18US billion in net debt (BP, 2025). Shell has taken a more value, less volume approach to its equity with an approximately 14US billion total share buyback in 2025, and flat capex guidance (20.9US billion in 2025 and 20-22US billion projected in 2026) (Shell, 2026). ExxonMobil remains the largest absolute spender (ExxonMobil, 2025) with a 27-29US billion capex in 2025. However it is also the largest low carbon investor, although this 20US billion (cut from 30) pledge is still only ~13% of capex between 2025-2030. Finally Total Energies has pledged 25% (cut from 29%) of its 2026 capex spending to clean energy (TotalEnergies, 2025). Across all four the current common thread is restraint. 

The lessons from these trend setting oil giants are clear. This is an industry that has learnt from its actions in 2014-2020. Shell wrote off 22US billion in 2020 (Fortune, 2020), BP took 17.5US billion in impairments the same year (Washington Post, 2016) and Exxon Mobil lost its AAA credit rating in 2016 (Reuters, 2016), ending a 67 year run. The lesson these companies learnt was clear, they could not extrapolate cycle-peak prices into long term project decisions. They have started considering what is a cyclical upcycle compared to a true structural change. They are now prioritising Free Cash Flows (FCF), buybacks, and resilient balance sheets rather than reserves growth. They are now acting as cash return vehicles rather than growth oriented commodity producers. 

For the equity market this has two major consequences. Forward earnings estimates have remained conservative despite the price spike, these oil giants are signalling they do not think their increased profit margins will continue and are instead a temporary windfall. Refusing to assume oil will stay above 90d/b indefinitely. Secondly, looking more structurally, the terminal value multiple applied to oil equities is permanently lower due to uncertainty surrounding long term demand. This has significant effects on company valuation as approximately 70-80% of a DCF valuation is derived from the terminal value. These two effects compound, lower forward earnings estimates plus a lower terminal value multiple equals shares that have not spiked proportionally with the change in oil prices.

   4. The road to sustainable energy and where the money actually is

So how much is being invested into sustainables and what is driving it? Over the last 5 years 70% of the increase in clean energy spending has come from net fossil fuel importing countries (IEA, 2025a), principally China, India and Europe for whom electrification is a way to reduce exposure to imported energy. One thing is clear, the direction of capital is unambiguous, it is unequivocally moving into sustainable energy, partly driven by supply side stress and energy security concerns. As noted earlier, of the 3.3 trillion invested into energy in 2025, 2.2 trillion of it was into clean energy. Part of this was made up by 450 billion into solar with the electricity sector totalling 1.5 trillion. The shift is clear and decisive; only ten years ago fossil fuel investment was ~30% higher than investment into electricity generation, grids and storage. This has flipped even more profoundly than the above numbers suggest. Within the power sector specifically, the IEA estimates that combined investment in low emissions generation and battery storage now exceeds fossil fuel generation by 12:1 in advanced economies. 6:1 in China and even by 2:1 in emerging markets (IEA, 2025a). 

Demand-side signals all point towards the same direction. The current IEA policies scenario states that global oil demand will peak in 2030 before declining with over 840 million EVs projected to displace 10mb/d of oil demand by 2035 (IEA, 2025b). OPEC contests this timeline projecting continued oil demand growth all the way into 2050, with no peak oil demand on the horizon (OPEC, 2025). This is on the basis of slower EV demand in emerging countries. Despite this however, one thing is clear, the exact timing of  peak oil demand is uncertain, but the long term direction of travel is unambiguous. 

   5. Risks to thesis

The view set out in this article is predicated on several assumptions that may warrant scrutiny. The most immediate source is the duration of the Iran conflict. The EIA’s price path assumes that traffic through the Strait of Hormuz gradually resumes in Q2 of 2026. A drawn out diplomatic process could keep Brent above US$100/b into 2027.  The second risk is the trajectory of EV adoption in advanced economies. If the global EV S-curve is shallower than the IEA’s stated policies scenario assumes, the displacement of oil demand pushes further into the 2030s. Thirdly is the rapidly changing AI-driven electricity demand. Data centre power consumption is moving faster than expected in 2020s era forecasts (IEA, 2025c), this demand is, in the US, being largely met by gas powered generation. Finally electrical grid bottlenecks will slow renewable energy buildout and the lower reliance on fossil fuels is dependent on grid buildout speed and capital spending. The IEA estimates that grid investment needs to roughly double by 2030 to meet connection targets (IEA, 2025a) and current spending is lagging. 

Conclusion

Whilst framing this article as “the last era of oil” is provocative it is unlikely literal. Oil will continue to be essential to transport, petrochemicals and aviation well into the 2040s (even in faster transition scenarios). What is truly ending is the era in which oil was both a dominant energy source and destination for energy capital. The supply side stress in 2026 is simply reminding markets how dependent the global economy is on a handful of producers and a single chokepoint. Whilst the capital spending is reminding them that the majority of new energy capacity will be increasingly electric. These two are not in tension, but reinforce each other. Investors must keep in mind the implications, and position for both: cash return discipline in the legacy sector and capital allocation exposure to the build out replacing it.

References

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