Investing in oil stocks can be a lucrative endeavor, but determining the right time to enter a sector known for volatile swings can be tricky.
Over the past five years, the oil market’s inherent volatility has been on clear display. Major declines in consumption brought on by the COVID-19 lockdowns was followed by oil prices surging to US$122 per barrel for Brent and US$115 per barrel for Western Texas Intermediate (WTI) in mid-2022, as the world economy began to recover and Russia’s invasion of Ukraine led to the consequent sanctions on Russian oil.
In 2023, oil prices experienced significant volatility. Fears of a global recession gave rise to bearish sentiment over much of the oil sector and pushed Brent prices as low as US$67 and WTI as low as US$64 per barrel in the first half of the year. Despite a Q3 spike in Brent above the US$98 level and WTI above US$90, oil prices trended back down in Q4 to dip below US$78 for Brent and US$71 for WTI even with conflict escalating in the Middle East.
In 2024, the oil market experienced a relatively stable but downward-trending year overall. As tensions flared up between Iran and Israel in the Middle East, prices for Brent and WTI respectively peaked at around US$93 and US$88 per barrel in mid-April. In the second half of the year, record US production and sluggish global demand growth, particularly in China, pushed prices down to below US$70 for Brent and US$65 for WTI.
In 2025, volatility was very much in play for global oil markets. Some of the biggest factors driving that volatility were OPEC+ production hikes, weaker demand from major economies like China and US President Donald Trump’s tariff wars. Brent and WTI crude both started the year above US$70 per barrel but late in the year, Brent dipped below US$60 per barrel and WTI fell as low as US$55 per barrel.
Since the start of 2026, the price of Brent crude oil has climbed by nearly 9 percent to US$66.37 per barrel and WTI crude oil is up by 8 percent to US$61.90 per barrel as of January 14 as geopolitical risks continue to threaten supply despite broader market oversupply pressures.
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How do energy stocks compare to broader equities?
Energy stocks performed positively in 2025, with the S&P 500 Energy index posting a gain of 4.96 percent for the year, although the sector lagged that of the broader S&P 500’s (INDEXSP:.INX) gain of 17.25 percent during the same period. Still, this was an improved performance over the 2.31 percent returns the energy sector posted in 2024 compared with the 23.3 percent gains made in the broader S&P 500.
Oil stock prices typically track oil prices, but that was not the case in 2025. Many major oil stocks performed relatively well in the face of declining oil prices. Those oil companies seeing share price appreciation were more likely to be led by fiscally responsible management teams that were able to achieve debt minimization and strong cash flows even with lower oil prices.
What will be the story in 2026?
Trends impacting the oil market in 2026 and beyond
In 2026, the outlook for the global oil market is looking bearish, as analysts are projecting a decline in oil prices due to a supply surplus.
In mid-January, the US Energy Information Administration (EIA) put forward a forecast predicting an average WTI crude oil price of US$52 per barrel for this year, and US$50 per barrel in 2027. As for Brent crude oil, the EIA forecast average prices of US$56 in 2026 and US$54 in 2027.
These forecasts predict oil prices will decrease due to a number of trends, mainly rising inventories as production exceeds demand, a slowdown in economic growth and the adoption of renewable energy technologies. In addition, the geopolitical conflicts in Venezuela and the Middle East are expected to cause oil price volatility this year.
Year of the glut?
Arguably the biggest factor influencing the oil market this year will be the outsized surplus, leading some analysts to call 2026 the “year of the glut.”
Deloitte is forecasting the largest oversupply in the oil markets since the COVID-19 pandemic.
“The oversupply is real, and while demand and economies are waking up and moving forward, they’re not moving forward at the robust rates that we might hope,” Andrew Botterill, a partner at Deloitte Canada and lead author of the report. “We see ourselves in a big oversupply situation right now of about three million barrels a day. We should expect downward pressure on prices, especially in the first half of the year.”
OPEC has a differing outlook for this year. Rather than a supply glut, the group of oil exporting nations sees a near balance emerging between supply and demand for 2026. Regardless, OPEC+ plans to pause its planned production hikes for the first quarter of the year.
China’s oil demand
As the world’s second most populous country, China is unsurprisingly the world’s second largest consumer of oil (after the United States) and the largest net importer of the energy fuel. With well over half of its imports coming from OPEC member countries, Chinese demand can strongly influence the oil market.
China’s oil demand is forecast to slow this year as its economy struggles, and electric vehicles continue to replace internal combustion engine (ICE) vehicles on its roads. The Asian nation’s economy is continuing to struggle with a beleaguered property sector, declining consumer confidence and debt-burdened local governments. Still, the World Bank is forecasting a 4.4 percent growth rate for China’s economy in 2026.
Although China continues to import oil, a large portion is going toward strategic stockpiling rather than industrial consumption. Goldman Sachs (NYSE:GS) expects the nation to add 500,000 barrels per day to its inventories over the next five quarters in order to bolster its energy security, Bloomberg reported in September.
Renewable energy’s market share
Renewable energy sources are increasingly taking up a larger share of the overall energy mix, although oil and gas continue to represent the largest share of the pie.
Another consideration is the continuing growth of electric vehicle sales. Global sales reached a record 20.7 million units in 2025, up 20 percent over 2024.
However, the growth rate varied significantly by region. For example, the US market experienced a mere 1 percent growth rate, while the Canadian EV market saw a 41 percent decline in sales. On the other hand, EV sales in China grew 17 percent, and in Europe they grew by 33 percent.
Despite the record growth, EVs still remain an economic luxury for the general North American consumer concerned with not only the price, but also the lack of charging infrastructure. US President Donald Trump’s negative stance toward the renewable energy sector is also hindering growth in the US market.
As of 2026, ICE vehicles still dominate the global vehicle market compared to EVs, and that looks set to continue in the near future. In a late 2025 survey of potential car buyers from 28 countries, 50 percent of respondents said they plan to buy an ICE vehicle in the following 24 months, while 14 percent planned to buy an EV and 16 percent, a hybrid vehicle.
US oil production
After reaching record levels in 2025, US oil production is expected to decline this year. According to the EIA, the country’s oil production came in at 13.61 million barrels per day in 2025. That number is forecast to lower to 13.53 million barrels per day in 2026 as lower prices for the commodity are reducing the incentive for oil companies to drill new wells.
US foreign policy and interventions in Venezuela and the Middle East are also likely to influence global oil markets this year.
Venezuela, largest oil reserves in the world
In January 2026, US forces removed Venezuelan President Nicolás Maduro from the country and the Trump administration seized control of Venezuela’s state oil company. The US government is now moving to liquidate up to 50 million barrels of heavy crude oil from Venezuela on global markets, with funds from the sales added to US accounts. It also said it plans to modernize and upgrade the country’s oil infrastructure and electricity grid to increase Venezuela’s oil production, which totaled 800,000 barrels per day in 2025.
Venezuela holds an oil reserve of 303 billion barrels, and if the administration were to succeed in these plans it could have major implications for oil prices in the years ahead. Additionally, an influx of Venezuelan oil lowering global prices could further disincentivize domestic production in the United States.
However, analysts warn it will take many years, tens of billions of dollars in capital expenditures and buy-in from US oil majors to restore the country’s once vibrant oil industry due to the state of the neglected infrastructure.
This would also require US oil majors to take the risk of investing in these upgrades. Venezuela’s heavy crude is suited for US Gulf Coast refineries, including major refiners like ExxonMobil (NYSE:XOM). However, Exxon’s CEO commented that the country is currently ‘uninvestable’ and the company would require durable investment protections and buy-in from the Venezuelan people to begin operations in the country.
“Industry estimates suggest production could recover toward 2 million barrels per day (up 500,000 – 1 million bpd from current levels) within one to two years under favorable conditions,” according to a report by TD Securities. “Beyond that, at least $20 billion worth of investment and a timeline spanning towards 10 years would be needed to add an incremental 500,000 bpd worth of production, with some $50 billion – $60 billion of investment required to return to 1998 levels.”
Middle East conflict
There are a number of major geopolitical conflicts playing out across the globe that have the potential to impact both oil production and transport, leading to higher prices for the commodity. Conflicts in the Middle East, responsible for a vast majority of global oil production, are of great consequence to the market.
So far in 2026, Iran is the center of conflict in the Middle East due to widespread protests against the government, which the government has responded to by killing thousands of protestors. Initially, the US weighed military intervention in response, and threatened tariffs on countries doing business with Iran. The ramifications of the Iran-US tensions have the ability to impact other regions of the market, especially China.
By the end of January, Trump was considering ‘airstrikes aimed at Iran’s leaders and the security officials believed to be responsible for the killings, as well as strikes on Iranian nuclear sites and government institutions,’ CNN reported.
Is now a good time to invest in oil stocks?
The investment landscape for oil stocks in 2026 is complicated by ongoing geopolitical and economic uncertainties. Another major complication is the projected supply glut that has the potential to depress prices.
Whether analysts take a bearish or a bullish view on the outlook for global oil stocks in 2026, all would agree that investors will find the best value in high-quality companies with strong balance sheets that can weather lower pricing environments.
Lower share prices can offer a buying opportunity for investors who believe oil stocks will eventually recover and are open to holding the stocks long-term.
How to invest in oil stocks?
Of course, investors will need to do their own due diligence to determine if oil stocks are right for their portfolio and which stocks are the best bet.
Finally, exchange-traded funds (ETFs) offer an excellent avenue to investing in the oil sector as they allow for exposure to a diversified portfolio rather than a single stock. There are several oil ETFs available to investors, including options such as the iShares Global Energy Sector ETF (ARCA:IXC), the United States Oil Fund (ARCA:USO), and the SPDR S&P Oil & Gas Exploration & Production ETF (ARCA:XOP).
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
