Executive Summary

We continue to view gas macro as more interesting and better positioned than crude macro in 2026, and we expect price support around the $4 mark for the next few years. Prices temporarily fell below this level during the summer due to an increase in supply that ran ahead of demand associated with LNG export projects. However, we expect demand to continue increasing into 2026 with continued ramp-ups for LNG export projects and a decline in associated gas production growth.

By contrast, we see downside risk for crude, even after the 2026 strip has declined by $8 to $57 since we put our $55 price target in place in October. The market remains oversupplied, with geopolitical concerns being a key driver of price risk.

Exports from Russia and Venezuela remain key points of potential volatility for commodity prices in 2026 and we discuss the potential impacts from these markets. News emerged over the weekend of the capture of Nicolas Maduro, which increases the likelihood of growing crude exports from Venezuela as a new government is established. While it’s too early to know how Venezuela’s oil industry will evolve, it would only require modest amounts of capital to materially increase production over a 12-24 month period.

Relative Value
We are maintaining our Market perform recommendation for IG Energy. Our view reflects a constructive approach to fundamentals across the sector, with issuer balance sheets providing flexibility to navigate a lower commodity price environment. Several large issuers have reached their deleveraging targets and started to direct more cash flow to shareholder distributions. However, we note several credits still progressing toward post-M&A debt reduction targets, including OXY, OKE, EQT, FANG and DVN, which should support overall leverage trends. Current spreads ~15 bp outside the index also provide some offset vs the potential for weaker commodity prices, although we note that the current differential is somewhat tight vs historical levels.