Expensive Oil Is Funding Buybacks, Not New Barrels

The energy price spike is not reviving oil supply. In our view, it is being handed back to shareholders first. On 29 October, Shell reported third-quarter adjusted earnings of $10.8bn and announced a new share buyback programme of $5bn, to be completed by the fourth-quarter results announcement 1. Shell is investing, but in gas: it completed the acquisition of ARC Resources and took the final investment decision on LNG Canada Phase 2, with 2026 cash capital expenditure expected at $23-25bn, ARC included 1.

The numbers confirm the discipline. Shell generated $21.0bn of cash flow from operations in the quarter and cut net debt to $39.7bn, from $41.8bn at the end of June 1. Its indicative refining margin reached $42 a barrel in the third quarter, from $24 in the second 1. Equinor, for its part, announced the fourth and final tranche of its 2026 buyback programme, of up to $1,125m including the Norwegian State's share, starting on 29 October 2.

This restraint fits a longer trend. According to the International Energy Agency, upstream oil spending declines in 2026 for a third consecutive year 3. The World Bank, meanwhile, expects global oil supply to fall 5.2% this year, the largest drop in more than four decades outside the 2020 recession, which it attributes to the conflict in the Middle East 4. We think this shock is cyclical; it is underinvestment that will matter in the long run: less spending today means fewer barrels in ten years.

The objection is serious. The World Bank forecasts Brent to average $91 in 2026, then ease to $79 in 2027 4. Buying back stock at the top of the cycle can destroy value. But we think it is precisely this normalisation scenario that deters the majors from drilling. Their discipline sustains the very scarcity they fear will disappear.

The bottom line

We think capital return is becoming the main equity catalyst in the oil sector. Lowly geared integrated companies with refining operations are converting the price shock into dated, measurable buybacks. It is visible value creation, quarter after quarter, independent of a bet on the oil price.

What to watch: the buyback amounts announced with fourth-quarter results, 2027 capital budgets, and the gap between refining margins and crude prices. A clear rise in upstream investment would invalidate the thesis.