The global energy sector heads into 2026 facing a complex landscape characterized by soft oil market fundamentals, elevated geopolitical risks, and evolving regulatory frameworks. Despite these headwinds, energy companies that have embraced the post-pandemic model of balance sheet strength, capital discipline, and free cash flow generation and shareholder returns are positioned to deliver durable optionality.
Global integrated energy companies navigate stormy conditions
Global integrated energy producers have demonstrated resilience despite the softer commodity environment. The outlook remains cautious, particularly for international gas markets as they absorb material new LNG supply additions. Similar to 2025, refining strength is expected to continue, though geopolitical events may dictate market direction.
The focus has returned to core business operations as governments prioritize energy security amid persistent geopolitical tensions. This shift creates room for improved incentives for energy development projects across the value chain, positioning multinational companies as clear beneficiaries. Recent examples from Nigeria and Indonesia suggest this trend may accelerate in 2026 as countries seek to enhance domestic energy production and improve resilience.
U.S. producers emphasize efficiency and defensive positioning
The U.S. exploration and production sector prepares for another selective market like 2025, given commodity price volatility, global geopolitical risks, and near-term oil market softness. U.S. exploration and production business models have become increasingly resilient with steady development plans benefiting from improved operational performance, artificial intelligence initiatives, and business/cost optimization programs.
Shareholder returns remain central to capital allocation strategies. For 2026, we model that large-cap companies could return 30% of cash flow and 78% of free cash flow, while small-to-mid-cap companies target 13% and 46% respectively. M&A activity is also expected to continue, though a challenging macro backdrop and fewer quality asset packages on the market could temper transaction volume.
“U.S. E&P business models are more resilient with more steady development plans that are increasingly more efficient given better operational performance, AI initiatives, and business/cost optimization programs.”
Scott Hanold, Analyst, RBC Capital Markets
Canadian energy sector benefits from structural improvements
Canada's oil majors maintain fundamentally solid positions, supported by strong balance sheets, ongoing capital discipline, free cash flow generation, and shareholder returns. Corporate consolidation, a renewed focus on long-life resources, and an improved policy backdrop have driven relative valuation re-rating since summer 2025.
The Trans Mountain Pipeline Expansion has proven its strategic value through structurally tighter Western Canada Select differentials and diversified market access. China's emergence as a consistent destination for Canadian crude loadings demonstrates the pipeline's success in providing tidewater access and reducing transportation constraints.
The recent Canada-Alberta Memorandum of Understanding represents a pivotal shift toward making Canada an energy superpower, providing a detailed roadmap for enhanced energy development and production capabilities. This policy reset, combined with LNG Canada Phase 1 commissioning, creates structural tailwinds for Canadian producers.
Focus of Canadian junior and intermediate E&P will likely be on free cash flow and its allocation amid historically low balance sheet leverage. Given that, combined with lower commodity prices, companies are expected to continue executing on their disciplined and efficient development plans as opposed to chasing growth. The sector anticipates continued consolidation through M&A activity both on the asset and corporate side.
“As debt targets are reached, producers should have considerable capacity for accelerating return on capital, growth, and strategic initiatives – such as incremental M&A.”
Michael Harvey, Analyst, RBC Capital Markets
Australian producers leverage Asian market growth
Australia's position as a leading global LNG producer provides exposure to high-growth Asian markets and attractive spot pricing. Australian LNG project revenue is supported by long-term oil-indexed supply contracts to major Asian markets in China, Korea, and Japan, with Asian spot pricing expected to potentially remain above other global hub indices through 2026.
Global project developments drive Australian large-cap production growth. As project capital expenditure rolls off, rising free cash flow should enable debt reduction, increased shareholder distributions, and further disciplined investment in brownfield development opportunities.
Global oilfield services position for selective growth
The oilfield services sector prepares for flat year-over-year capital spending with flexibility to adjust based on prevailing oil market conditions. Bright spots include subsea installations, natural gas and selective growth-focused regions, and power generation, with broader oil market balancing and tendering outlooks expected to drive growth from the second half of 2026 onward.
Offshore execution and margins are ramping up following record order intake years in 2022-2024, with 2026 expected to deliver another high-intensity year for project execution. Vessel and fleet utilization remaining near record levels should drive higher EBITDA margins year-over-year for main participants.
Canada's onshore exploration and production activity has demonstrated significant resilience compared to U.S. activity levels. Given substantial producer reserve life indices and improving policy environments, the outlook remains structurally positive for Canada-based oilfield services firms.
Energy transition shows measured progress
Carbon capture and storage projects demonstrate steady advancement despite challenging policy environments, with Europe marking tangible milestone achievement.
In the U.S, carbon capture development remains uncertain, despite expanded 45Q credits, due to the termination of key funding programs. The Environmental Protection Agency continues issuing state primacy approvals, with Texas joining Wyoming, Louisiana, West Virginia, North Dakota, and Arizona, where regulators aim to accelerate approvals and deployment.
Renewable fuels markets experienced volatility through 2025 with regulatory framework changes across Europe and North America accompanied by global tariff uncertainties. European sustainable aviation fuel demand increased amid EU jet fuel blending mandates, while U.S. renewable diesel prices recovered modestly from multi-year lows despite continued policy uncertainty.
Hydrogen sector sentiment remains subdued heading into 2026, with government funding cuts limiting financial incentives for green hydrogen adoption while blue hydrogen maintains cost competitiveness. In Europe, Renewable Energy Directive III implementation progresses slowly as member states assume enforcement responsibility, with only four countries legislating quotas to date.
Positioning and risk management
Energy companies that demonstrate strong fundamentals, diversified cash flow streams, and disciplined capital allocation are expected to outperform regardless of commodity price movements. The post-pandemic business model emphasizing financial resilience, shareholder returns, and operational excellence provides durable optionality in an uncertain market environment.
Risk factors include potential commodity price declines, geopolitical instability affecting supply chains, regulatory changes impacting project economics, and the ongoing challenge of balancing traditional energy production with transition investments. Companies maintaining strong balance sheets, efficient operations, and strategic flexibility remain best positioned to navigate these complex dynamics while delivering value to shareholders.
RBC Capital Markets’ Global Energy Research team authored "2026 Global Energy Outlook," published on December 4, 2025. For more information or to access the full report, please contact your RBC representative.
