In the short term, oversupply and geopolitics are driving oil prices, but other factors will affect energy costs in the future.
Oversupply is a factor in current pricing, but “structural divergence” will drive longer-term pricing, Claudio Galimberti, Rystad Energy’s chief economist, said during a 19 February briefing by Rystad analysts in Houston.
“There is probably little doubt that we are going through a period of oversupply, not just in oil, but probably in LNG, definitely in solar,” he said.
The current oversupply in the market is about 2.5 million BOPD, he said, which is about the amount OPEC+ brought back into the market last April.
“This is the single most important reason why we are in an oversupplied market right now,” he said.
For about the past decade, he said, OPEC+ has reduced market volatility.
“You may argue whether or not they had a benign or not so benign effect on the market. I refrain from making judgments. What I say is that without OPEC, the volatility in the price would've been much higher,” Galimberti said.
Iran, Venezuela, the Strait of Hormuz, and the Russia-Ukraine war offer geopolitical risks that could add a premium to oil prices, he added.
He outlined five scenarios for future Iranian crude supply as US President Trump weighs options ranging from diplomacy to efforts to topple the regime: a new nuclear deal, which could put modest downside of about $5/bbl on prices; a pragmatic successor to the current leadership, which could trigger a sharp upside of more than $10 before easing; limited US strikes, which could cause a short-lived spike of $5–$10; a confrontational successor, which could result in a sustained upside of about $15 before partial pullback; and civil unrest, which could drive a disorderly price surge of more than $15.
The industry needs a “mind-boggling $8 trillion” in investments over the next 15 years, he said, calling specifically for investment into shale and deepwater.
“Shale is going to be resilient” and a “major source of supply,” he said. “We have seen a lot of growth, specifically here in the United States, in terms of productivity and efficiency, and this leads us to believe that shale will be able to continue to prosper in the foreseeable future.”
Deepwater production will also remain important, specifically Brazil and Guyana, he said. “They will continue to grow, and they will reach peak deepwater supply in the early ‘30s,” he said.
Over the long term, Galimberti believes there will be a divergence in the energy system driven by two superpowers who have “very, very different views” on the systems, which has implications for the rest of the world.
China is investing heavily in renewables and electrification, while the US is doubling down on oil and gas, he said.
“The rest of the world, as a matter of fact, will fall between these two, and basically, based on the alliances, their energy system may be affected by geopolitics, which is something that we haven't seen for probably 30 years,” he said.
Permian’s Gassier Future
2026 isn’t even 2 months old, and narratives around oil and gas prices have already shifted several times, Jai Singh, Rystad’s head of oil and gas research for North America, said.
Demand fell short of expectations. A warmer-than-expected winter lessened heating demand, Golden Pass LNG was delayed, and the expected rise in demand related to artificial intelligence processing in data centers didn’t materialize on schedule, he said. That all combined with tariff-related struggles to create changing outlooks on pricing, he said.
“Of course, the industry kind of just figures it out, no matter what the macro situation,” he said.
The Permian Basin, specifically, is less responsive to price swings than the other shale basins which may shed or add rigs depending on prices, he said. For example, consolidation is leading to efficiencies in terms of lateral placement, length of laterals, and gas gathering and processing.
As the industry has fine-tuned its operations, the business model in the Permian has changed. “The shale industry flipped from a growth industry to a cash cow industry. The ability to return cash in the form of dividends and buybacks is really key to the investment proposition,” Singh said.
When it comes to investing, Permian operators are thinking about future gas takeaway capacity.
The play’s gas-to-oil ratio is rising. “This is wet gas. The older the well, the gassier the production. As the Permian ages, the production from producing wells gets gassier. The 2015 vintage well is gassier today than the 2020 well, and over time it's just going to get gassier,” he said.
At the same time, the oiliest places within the basin have been drilled, which means the industry is getting more into the gassier formations. Even in a weak oil price environment, gassier zones can still be economically viable, he said.
To cope with the increasing gas production, operators are approving gas processing and pipeline projects.
And as shale production evolves, it’s important not to write the shale plays off. “One of the things that we don't want to assume about shale–it's always a bad assumption–is to say, ‘Oh, it's over. We're not going to find new things in shale. It's all been picked over.’ Well, the reality is, there's lots of interesting delineation programs, and new areas; new plays can emerge, whether it's a new zone underneath existing formations or it's in areas that haven't been explored yet,” Singh said.
Vaca Muerta Shale Output Growing
In Argentina, shale production from the Vaca Muerta is replacing conventional production, yet shale wells there are expensive to drill, Andres Villarroel, Rystad’s senior analyst for shale research, said.
A decade ago, Vaca Muerta accounted for less than 10% of the country’s oil production. By 2025, it contributed 65% of total output, roughly 600,000 BOPD, while conventional production has dropped over the past 20 years, he said.
“Conventionals have been declining, and we don't expect those to ramp up again. We think that Vaca Muerta is going to offset that decline mostly because the largest operators there, YPF, which is the national oil company, and Vista Energy, the second-largest producer, have actually sold their conventional assets just to put all the resources into developing Vaca Muerta,” Villarroel said.
Drilling a well in Vaca Muerta costs almost twice as much as drilling one in the Permian Basin, despite the similarity in well designs, he said. “They pump a similar amount of sand, they have lateral lengths that are similar to those of the Permian, and so on. So it's just really that the services over there are much more expensive,” he said, adding, “The breakeven levels are similar.”
Drilling costs are higher, yet “the average productivity of the (Vaca Muerta) wells is actually above the best-in-class Permian wells, Delaware wells,” he said.
While development of the Vaca Muerta started in the core hub, a north hub is emerging. Villarroel said that while there’s not yet a lot of activity in the north hub, some of the shale wells there are among the most productive in the world.
