Research firm Wood Mackenzie has revised its 2026 forecast for the global upstream oil and gas sector, now projecting $495 billion in free cash flow assuming crude averages $90 per barrel. This represents a significant increase from the previous projection based on a $60 oil price assumption. The revision follows sharp increases in crude prices triggered by escalating conflict in the Middle East.
Wood Mackenzie estimates the Middle East conflict will reduce global oil production by at least 3%, with Iraq accounting for approximately 3 million barrels per day of lost output. Additionally, infrastructure damage in Qatar is projected to reduce global liquefied natural gas supply by 2%. While the projected financial gains are substantial, they will be concentrated among the world’s largest producers, with 49 major national and international oil companies expected to capture $272 billion of the total.
Despite the windfall, energy companies are expected to maintain disciplined capital allocation strategies. Capital expenditure budgets are projected to remain largely flat, and share buyback programs are expected to decrease by 5% as boards prioritize balance sheet strength and debt reduction. Companies have instead focused on mergers and acquisitions, with upstream M&A reaching a two-year high in the first half of the year, including major transactions such as Shell’s $16 billion acquisition of ARC Resources and Devon’s $25 billion merger with Coterra.
Wood Mackenzie analysts note that the industry’s cautious response reflects awareness that the price surge stems from geopolitical conflict rather than fundamental demand growth. They project that sustained elevated oil prices through the remainder of the year could create mounting pressure on energy companies to increase shareholder returns, pursue acquisitions, or boost investment spending. Meanwhile, oil prices declined in recent trading as traders adjusted geopolitical risk premiums following expectations of potential diplomatic negotiations between the United States and Iran, though military operations continue in the region.
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