Executive Summary

Energy stocks look cheap and the sector cash flow and dividend yields stay near record highs, even as the geopolitical risk premium in prices starts to come down off of earlier levels. Brent has pulled back from highs north of $100/bbl reached on March 20th 2026 amid the sudden shutdown of the Strait of Hormuz to trade in the mid-$80s to low-$90s as investors digest the implications of the biggest supply shock in history. With OPEC+ winding down voluntary cuts through September 2026 and US shale firms focused on FCAPital allocation rather than production growth, supplies are unlikely to flood the market and cause a repeat of the price collapse from late 2021, but are also unlikely to meaningfully tighten absent further conflict. We are bullish on energy 6-12 months out: the sector trades at half the market EV/EBITDA multiple but has more than double the free cash flow yield, and valuations seem excessively pessimistic given that oil prices are well above pre-war levels and there is no clear timeline for how this war will end. Risks to our thesis start with a comprehensive US-Iran deal that reopens Hormuz and could cause a rout in oil prices, but we find that development unlikely given both countries' negotiating stance.

Macro Backdrop

Global oil markets are still processing the biggest supply shock since the Covid pandemic. On February 28, 2026, the US and Israel initiated military strikes on Iran that were met with retaliatory attacks closing the Strait of Hormuz. As much as 20 million barrels per day of crude and refined product flowed through Hormuz prior to the war, equal to about 20 percent of global supply. IEA estimated total production knocked offline from the regional conflict at over 14 million barrels per day at its peak in March-April, while Brent prices topped $100 per barrel for the first time since Russia invaded Ukraine.

Supply disruptions through Hormuz have eased significantly since then but haven’t returned to prewar levels. Ship tracking data from Kpler indicated daily flows through Hormuz have stabilized to around 2 to 9 million barrels per day as of late August on a rolling basis, compared to pre-war levels of 18 to 20 million barrels per day. Saudi Arabia and the UAE have diverted crude exports through pipelines that bypass the Strait of Hormuz entirely. The Saudis’ East- West pipeline is now operating at capacity of 7 million barrels per day to the Red Sea port of Yanbu, while the UAE's Habshan-Fujairah line moves 1.8 million barrels per day to the Gulf of Oman and a recently inaugurated corridor along the coast of Oman brokered by the US military is exporting an additional 8 to 10 million barrels per day out of the region. On Aug. 26, 2026, Brent crude settled at $86.70 and WTI at $80.40, down from the mid-August highs of over $93 after the U.S. announced fresh sanctions against Iran. Iran also said it will keep the Strait closed until the U.S. ends its naval blockade and lifts sanctions. In its August 20, 2026 outlook, EIA raised its Brent price forecast by $11 from its previous forecast to $85 per barrel for third quarter of 2026 and raised its price assumption for calendar year 2026 to $87 per barrel.

OPEC+ has refused to ease existing production cuts and continue teasing future increases. Ministers from the 7 members who agreed to raise quotas for a fourth consecutive month in June added roughly 188,000 barrels per day to July quotas and signaled plans to fully eliminate voluntary production cuts by the end of September 2026. Riyadh is willing to maintain market-share protectionist stance as long as it has the world’s largest spare capacity buffer. Still, that buffer has declined rapidly: Pre-war OPEC+ forecasts put readily-available spare capacity at over 5 million barrels per day, while post-war estimates and those accounting for the UAE’s exit from voluntary cuts ranging from the IEA to private firms like Energy Aspects and Rapidan Energy now see spare capacity at around 1.5 to 3.5 million barrels per day, the bulk of which sits in Saudi Arabia and the UAE. US shale production continues to grow month over month and year over year, though the pace of growth remains modest thanks to capital discipline. EIA's August Short-Term Energy Outlook shows US tight oil production running between 9.3 and 9.5 million barrels per day and Baker Hughes reported a rig count of roughly 588 to 593 rigs in mid-to-late August, an annual increase of about 9 to 10 percent but down week over week. Operational efficiencies are allowing producers to extract more oil per rig through longer laterals and improved well completions instead of adding more rigs to chase growth.

Key Drivers

Energy equities are likely to trade off five key forces over the next two to three quarters.

1. US-Iran conflict & Hormuz reopening
   The reopening of Hormuz/the path of the US-Iran conflict is by far the biggest wildcard for energy prices and related equities. Iran has conditioned the reopening of the Strait on the US lifting its embargo on Iranian ports as well as sanctions on Iranian oil sales. Meanwhile, Iran and Oman are separately negotiating a temporary corridor for shipping. So long as there is any credible path to a ceasefire or reopening of Hormuz, oil prices and energy equities are likely to trade lower on the news over the near-term (recall Brent fell 10 percent in one session on ceasefire news April 20th-26th). But they would react positively over the long-term due to the bullish implications for the sector’s underlying demand base and shipping-intensive segments.

2. OPEC+ quota unwind
   Execution risk on OPEC+ countries’ plans to fully unwind their quotas by September is a mildly bearish price driver, but is not yet weighing on prices too heavily because actual supply remains tight worldwide due to the war. If OPEC+ truly does stick to its timetable and the war simultaneously de-escalates, it could drive prices lower more quickly than anticipated. On the other hand, Gulf spare capacity could be drawn down to compensate for further war-related losses, reestablishing the market’s tightness and bolstering prices. Support for prices is bullish for producers’ margins.

3. US shale discipline
   Continued capital discipline among US shale operators is bullish for producers’ profits, if less so for services and equipment companies. US producers are focused on generating free cash flow, deleveraging, and stock buybacks over volume growth and are staying disciplined as consolidation creates fewer, higher-return operators than before the downturn in 20-22. US production will not come flooding back into the market, even if prices stay in the mid-$80s for a sustained period. That tailwind should support energy producers’ realized cash flow per barrel.

4. Global LNG demand
   Highly supportive global LNG demand thanks to the loss of Middle East supply is unambiguously bullish for gas exporters. Cheniere Energy , the largest US exporter, has already updated its 2026 EBITDA forecast twice this year, most recently to $7.9 billion to $8.4 billion from its original forecast of $6.75 billion to $7.25 billion. Stronger-than-expected cargo exports combined with greater global competition for Cheniere’s flexible US cargoes, with Asia and Europe scrambling for alternatives to lost Gulf supplies have supported the revision. That dynamic should continue for as long as gas and condensate flows from the Middle East are disrupted.

5. Sanctions
   Sanctions enforcement risk and secondary geopolitical risk from the recently announced (August 24, 2022) new US global package of sanctions against Iran are the fifth driver to monitor. Prices initially sank as markets priced in an expectation that tighter sanctions enforcement meant fewer Iranian barrels would make it to market. But any risk of Iranian retaliation against shipping or infrastructure would be extremely bullish for prices and energy equities due to the risk premium being priced in.

   
   

Regional Lens

United States. Shale producers are currently the most capital disciplined generation in history. Companies are funneling higher prices straight to free cash flow, choosing not to recycle profits into future growth. US rigs counts have settled in the high 500s while tight oil production remains stuck around record levels of approximately 9.3 - 9.5 MMbpd, with industry dollar-for-dollar price sensitivity now dictated more by shareholder payout decisions than by how many rigs are running.

United Kingdom. The North Sea is easily the weakest fundamental story of Akabri's core regions. UKCS production peaked in 1999 at 4.5 million boed and fell to just 1.0 million boed in 2025. The broader North Sea is expected to stabilize production at around 5.3 million boe per day solely due to Norwegian start-ups, excluding any future UK comebacks. Upstream investment into the UK is forecast to decrease to less than $3.5 billion in 2026 and the downtrend to ~0.66 million boed by 2029 is already built into regulator expectations. These declines are baked in regardless of where oil prices go and make UK listed North Sea producers a structural underweight for us.

Canada. Canadian producers have the same capital discipline as US shale but trade at a lower geopolitical premium and are more reliant on egress to reach markets. Canada has seen significantly more rig count volatility than the US and dropped alongside the last round of North American pullbacks despite higher prices. Canadian operators have been more cautious with their activity even in this super-cycle.

GCC. Saudi Arabia and the UAE are the two swing producers in this cycle, maximizing pipeline capacity to avoid Hormuz while quietly increasing market share when they chose to unilaterally exceed OPEC+ quotas. While Aramco has stated it could produce 12 MMbpd of crude for an entire year, true spare capacity is likely closer to 1.5-3.5 MMbpd when factoring in operating limitations and decreased export capacity through traditional shipping channels. GCC state producers stand to gain the most from both price premium and normalization given their ability to fill any remaining gap in supply once the war ends.

Valuation and Positioning

Energy stocks trade at significant discounts to both their own history and that of the market as a whole. The S&P 500 Energy Index currently trades at ~8.0x enterprise value to forward twelve-month EBITDA compared to 15.2x for the S&P 500 itself, a discount of roughly 47 percent. The sector currently trades at ~8.2 percent on free cash flow compared to 3.4 percent for the broader index. Despite having the lowest EV to forward EBITDA multiple of any S&P 500 sector, Energy has the highest free cash flow yield. This combination of a steep valuation discount and superior cash generation is not commonly observed. Is the market pricing in current oil prices as temporary or are investors just underweight Energy stocks due to years of energy-transition driven outflows?

Looking at capital return policy helps answer that question. ExxonMobil trades with a $20 billion annual buyback plan and pays a 2.72 percent dividend. Buybacks retire roughly 3.1 percent of shares outstanding annually. Combined, these yield ~5.8 percent to shareholders. Distributions for the quarter totaled $9.4 billion vs. $17.2 billion of free cash flow. That’s a 55 percent payout and the rest went to debt repayment. Balance sheets are getting stronger as capital returns remain high. Energy companies have prices well above pre-war levels. Spending has been disciplined and in our view looks fair to cheap on an absolute basis and richly valued compared to the rest of the market.

Companies or Sub-sectors to Watch

Three groups stand out for continued outperformance if oil prices stay high.

Integrated majors (ExxonMobil). Exxon has the scale and balance sheet strength to continue rewarding investors through its 5.8 percent total shareholder yield of buybacks and dividends. The stock is the easiest way to maintain exposure to high prices as long as war risk flirts with oil markets.

US LNG exporters (Cheniere Energy). Cheniere has already hiked its full-year 2026 EBITDA guidance twice, and now expects $7.9 billion to $8.4 billion, benefiting directly from global gas buyers looking for alternatives to disrupted Middle East supply. This is a structural tailwind regardless of oil prices.

GCC national producers (Saudi Aramco, ADNOC-linked Equitrans, G-Trans, Dynagas). These four companies control the bulk of spare capacity the world will lean on to rebalance the post-war market and are already gaining market share as OPEC+ quotas expire.

Selective US shale producers with Permian-weighted portfolios. Those that remain capital disciplined and are converting record production into free cash flow instead of growth will be able to maintain buybacks should prices come off current levels.

Oilfield services companies with Gulf exposure. Service providers with contracts tied to Saudi/UAE pipeline capacity expansion and rerouting should continue to see investment from Gulf nations looking to build out bypass capacity around Hormuz.

Key Risks

Likewise, a negotiated US-Iran ceasefire that allows the Strait of Hormuz to reopen to normal traffic would result in rapid repricing down; recall that Brent crashed 10 percent overnight on ceasefire news back on April 2026. Similarly, if OPEC+ fully unwinds its quotas by its Sept 2026 deadline at the same time that the war de-escalates, effective global supply will rise faster than the market can absorb it, undercutting prices even below the EIA's $85 to $87 base case. Remember that escalation risk cuts both ways - in the event of a major attack on Saudi/UAE pipeline infrastructure (which is how all of the oil currently being diverted from Hormuz is flowing), the last remaining global oil safety valve would be shut off, and we could easily see $100 oil again. Obviously, that's bullish for price but could be bearish for stocks if it once again fuels demand destruction/recession fears. Lastly, persistently high prices could lead to demand destruction in price-sensitive markets like India/Southeast Asia. We've already heard from traders that this will be a source of downward pressure on prices even as supply risk persists.

Bottom Line

Energy stocks provide one of the few sectors in this cycle that boast high realized prices, excellent free cash flow generation, and a valuation discount that prices neither of those factors in. Akrabi Group has a bullish view on the sector overall and prefers globally integrated majors and LNG exporters with less financial risk compared to structurally challenged areas such as the UK North Sea. But they caution investors to keep an eye on the one risk that could abruptly reverse the pricing premium: a US-Iran deal. Position sizes should be calibrated with that binary risk clearly in mind, rather than betting on current prices to persist.