Shell Bets Big on Oil's Future—Even as a Massive 2026 Supply Glut Looms

Shell Bets Big on Oil's Future—Even as a Massive 2026 Supply Glut Looms

CEO Wael Sawan stays bullish on crude prices for the next decade. But there's a storm brewing first.

LONDON—Shell just can't stop buying back shares. The oil giant announced its sixteenth straight quarter of aggressive buybacks this October morning. Yet CEO Wael Sawan delivered a message that captures everything messy about today's energy markets: he's confident about long-term oil prices, even as the industry hurtles toward the most predictable supply glut anyone's seen in decades.

Shell posted solid numbers for the third quarter. Adjusted profit hit $5.4 billion. Cash flow from operations reached $12.2 billion. Both figures beat what analysts expected. Behind that $3.5 billion buyback program and record production from Brazil and the Gulf of Mexico, though, Shell's executive team is navigating some seriously choppy waters ahead.

"I remain confident in long-term oil prices," Sawan told investors Wednesday. He's singing the same tune as other Big Oil chiefs—ExxonMobil's Darren Woods and Saudi Aramco's Amin Nasser have said similar things recently. But here's where it gets interesting. Shell's leadership also acknowledged what the International Energy Agency spelled out two weeks ago: we're heading straight toward a 3-to-4 million barrel-per-day oil surplus as OPEC+ unwinds cuts and non-OPEC producers flood the market faster than sluggish demand can soak up.

This isn't corporate doublespeak. It's how modern energy investing actually works.

The Valley Ahead

Shell's CFO Sinead Gorman put the near-term challenge pretty bluntly. The fourth quarter won't have as many "high-quality" LNG trading opportunities compared to the third quarter's windfall that helped deliver those impressive earnings. Translation? The seasonal inventory glut and expiring hedges are turning billion-dollar arbitrage windows into much narrower corridors.

Oil presents the bigger headache. The IEA's October report projects demand growth at a measly 700,000 barrels daily in 2025 and 2026. Electric vehicle adoption keeps accelerating. China's economy keeps disappointing. Meanwhile, supply surges 1.6 million barrels daily this year alone. Even OPEC's rosier forecasts can't change the math. When Brent crude slides to $61—its lowest in five months—the market's pricing in some serious pain ahead.

Industry veterans see it differently. "Shale oil will start slowing down at $60 per barrel," energy analyst Tracy Shuchart noted earlier this month. Her point? The glut might cure itself. "From mid-2026, non-OPEC supply will be much lower, no growth, and then OPEC is really in control." Energy investor Eric Nuttall calls it "the most heavily anticipated supply glut in history." When everyone sees it coming, investment slows and wells deplete faster.

Shell's betting on that correction. But they're hedging against the valley first.

Playing It Smart

Shell's capital allocation reveals a sophisticated game plan. Analysts watching the company see a barbell strategy: keep pumping oil from low-cost assets while doubling down on LNG as the growth engine through 2040. Those Permian and Nigeria operations break even below $40. That's cushion most competitors don't have.

LNG is where Shell dominates. They control 20% of the global market with 45 million tonnes of annual capacity. Competitors keep hitting delays—cost overruns and regulatory nightmares pushing U.S. Gulf Coast and Qatari projects into 2027. Shell's turning those industry headaches into competitive advantages. Sawan's claim that LNG markets will stay "balanced" through next year isn't wishful thinking. He's reading supply-chain fragility that's keeping spot prices at $10-to-$12 per million BTU. That equilibrium makes Shell's integrated gas division print money.

For institutional investors, the playbook's clear. Buy Shell when earnings-day weakness hits. Pair that position with Brent crude collars or short positions against shaky shale producers. You capture Shell's diversified earnings—integrated gas delivered $2.14 billion in third-quarter profit, upstream brought in $1.80 billion, marketing added $1.32 billion. And you dodge the commodity cliff that'll crush pure-play exploration companies.

"You're paid while you wait," one energy fund manager explained. He's talking about Shell's 4% dividend yield and those relentless buybacks continuing even at $60 Brent. The company's fourth-quarter guidance provides earnings visibility that crude-dependent peers simply lack.

The Geopolitical Angle

Shell's LNG confidence isn't just about commercial opportunity. The EU's 2027 ban on Russian LNG imports eliminates 80% of Moscow's pre-war European market share. That volume has to flow from somewhere—U.S. terminals, Qatari fields, and Shell's global trading book. Asia's coal-to-gas transition adds another layer. China and India will need 50 million tonnes of additional annual supply by 2030 despite near-term inventory hoarding that's currently suppressing Chinese imports.

Sawan's been dropping hints about merger-and-acquisition appetite in recent interviews. He sees "opportunities" as smaller producers buckle under price pressure. Shell's sitting on $41.2 billion in net debt with fortress-level cash generation. They've got the balance sheet to snap up deepwater Gulf assets or grab Permian acreage at fire-sale prices while competitors retreat.

The Endgame

Here's the fundamental bet. Underinvestment in upstream projects since the 2020 pandemic crash creates medium-term scarcity. Global oil fields decline at 5% to 7% annually without replenishment. ExxonMobil's Woods warned of "15% annual decline risk" without sustained investment exceeding $500 billion yearly. Upstream capital spending still runs 20% to 30% below maintenance levels. The path to supply deficits post-2027 looks credible even though 2026 promises surpluses.

Shell's essentially telling markets: survive the valley, position for the rebound, and use volatility to compound advantages through trading and M&A. Whether Brent tests $50 or finds a $65 floor depends on OPEC+ discipline in coming quarters. But Shell's diversified model means they outlast pure-play producers either way. They're pulling 15% to 20% of profit from gas trading and another 25% from LNG. Nobody else has that cushion.

For investors, this isn't really a paradox. It's pragmatism. Oil's 2026 oversupply is real. But the subsequent decade belongs to those who can afford to wait—and trade the chaos in between.

NOT INVESTMENT ADVICE