2026 oil and gas outlook: Reconciling industry forecasts with company consensus

Recent independent forecasts for 2026 oil prices suggest they may fall well below the levels oil companies expect, according to the Q3 Dallas Fed Energy Survey. The gap between company expectations and industry forecasts is closing but still notable. In early 2025, survey respondents expected oil prices to be around $70 per barrel in 2026. That expectation has since fallen to an average of $64—but major independent forecasters project 2026 West Texas Intermediate (WTI) oil prices to be in the low- to mid-$50s per barrel. While still hoping for an upside surprise in 2026, companies across the North American oil ecosystem should develop their strategy now for the possibility that these lower-than-expected U.S. oil prices materialize in the coming months. 

Understanding driving factors for lower oil prices

What’s the culprit for this downward pressure on oil prices? Global oil markets face the likelihood of a growing oil surplus into 2026. According to forecasts from the U.S. Energy Information Administration (EIA), the International Energy Agency and BloombergNEF, production growth will outpace demand growth, peaking in the first half of the year with a surplus of 2.1 to 4 million barrels per day (MMbpd). Even OPEC+, which often has a more bullish view on oil markets and recently forecast an oil deficit of just 0.05 MMbpd in 2026, decided in its November meeting to pause further increases for the first quarter of 2026.

Geopolitical risk has a part to play, too, and while the risk premium has declined as conflict in the Middle East has eased, nothing is guaranteed. Reescalation that involves regional suppliers, or changes that impact the Russian supply to markets—such as the U.S. sanctions on Russian oil companies announced in October—can quickly affect the risk premium and trade balance and lead to an oil price spike.

These factors are driving 2026 oil price forecasts into territory that could make decisions about new North American drilling projects challenging. Forecasts for WTI oil prices across 2026 range from approximately $49 to $57 per barrel, but average breakeven costs for drilling new wells in the U.S. range from $61 to $70 per barrel. In actuality, the situation is more nuanced than a simple breakeven calculation: Drilling new wells requires significant capital investment and years of planning. 

Oil prices vs. production levels

In early 2025, oil prices dropped from the $70 range to the $60 range. Typically, lower prices hinder production, yet the data tells a different story. Deployment of drilling rigs fell 15% earlier this year as prices dropped and uncertainty grew, but U.S. production dipped only 2% before growing to record highs of over 13.6 MMbpd, largely thanks to improvements in drilling and fracking technology.

Further, recent earnings calls from major producers indicate plans to maintain or even increase drilling activity in 2026 despite the near-term price weakness. Given the long-term nature of these projects, companies are positioning for anticipated price recovery in 2027 and beyond, rather than optimizing for immediate returns. 

Small and middle market companies in the oil value chain, especially upstream companies and those supporting them, may not have the same willingness or appetite to make similar decisions, and instead may slow new drilling activity in the face of lower oil prices. 

Ripple effects across the value chain

Oil exploration and production companies and oil field services providers may be on the front lines of any oil price squeeze. But companies across the value chain are feeling the effects, both positive and negative. In the midstream space, pipeline operators could see slower throughput demand as production growth stalls or even reverses, while onshore and floating storage operators are already seeing increased demand as producers and traders hold barrels off the market, expecting better future pricing. 

Downstream companies also face a complicated picture. Lower crude costs typically improve refining margins, but only if refined product demand remains resilient. With global economic uncertainty and the ongoing electrification of transportation, gasoline and diesel consumption patterns are changing and refiners cannot assume that cheaper oil translates to higher margins. Further, for petrochemical companies, lower oil prices reduce feedstock costs and often correlate with weaker industrial demand and economic activity—reducing demand for plastics, chemicals and other petrochemical products.  

Natural gas offers a brighter outlook

The natural gas outlook is markedly different for 2026. EIA forecasts Henry Hub natural gas prices will average $3.90 per MMBtu in 2026, up substantially from record lows near $2 in 2024, and Bloomberg forecasts prices around $4.50 to $5 near the end of 2025. This price strength is backed by:  

• Growth in liquefied natural gas exports 
• Increased consumption for electricity generation to power data centers 

• Increased demand for industrial production
• Winter heating of homes and businesses

However, this optimistic natural gas outlook comes with an important caveat: Some gas forecasts also assume a colder-than-average winter across the U.S. With a weak La Niña already developed, much of the country might experience a warmer-than-average winter, which would depress demand, contrasted with a colder-than-average expectation for Canada and northern Europe. Anyone banking on sustained high natural gas prices should stress-test their plans against a milder winter scenario overall that could leave storage levels elevated and keep prices toward the lower end of forecasts, while preserving optionality for price spikes in the event of a polar vortex event that prompts surges in demand and temporarily curtails production. 

How should oil and gas companies prepare for 2026?

Companies across the oil and gas value chain should evaluate whether their 2026 plans factor in the possibility of lower oil prices. This means evaluating financial exposure and hedging, stress-testing budgets against $50 to $55 per-WTI-barrel scenarios, and evaluating specific triggers where the company may change course. 

Of course, lower prices would also create opportunities. Consolidation may resume and streamlining may accelerate if small-to-midsize producers or services companies face cash flow pressures, creating acquisition opportunities for companies with strong balance sheets. Additionally, costs for services and equipment may moderate, which would be a positive for producers but challenging for oil field servicers.  

Further, the revenue pressure on producers and oil field services companies is already driving some to adopt and develop new technology-centric solutions that let them deliver existing plans more efficiently or deliver entirely new, higher-margin services. Companies that prepare to capitalize on distress or use it as a catalyst may emerge from a downturn in an even better position than they’re in today. 

Takeaway: Prepare for multiple scenarios

If WTI oil prices below $55 materialize and are sustained, a contraction in oil production is likely, with ripple effects across the energy sector. Companies across the value chain need to analyze and forecast their own exposure to this likelihood and identify ways they can prepare now to weather and even capitalize on a potential slowdown.  

Smaller and middle market companies tend to be more exposed in a lower-price environment, making scenario analysis especially important. Companies that have planned for the downside so they are not caught off guard, while remaining positioned to capture upside, will be best equipped to navigate whatever 2026 brings.