- Oil majors represent around 10% of FTSE 100’s total stock market capitalisation
- They are also expected to generate 10-11% of the index’s total profits and 11-12% of its total cash returns in 2026 and 2027
- This suggests neither sustained upside, nor downside, in oil and gas prices is factored in
“From the very narrow perspective of financial markets, one issue related to the Middle Eastern conflict that continues to exercise investors’ minds is the trajectory of oil and gas prices,” says AJ Bell investment director Russ Mould.
“The world relies less upon oil as a total percentage of its energy needs than it did in 1973, 1979 or 1990, when wars broke out in the Middle East and the price of crude spiked, while OPEC’s share of global supply is not what it was either, but equity and bond markets seem spooked all the same.
“To talk about asset prices during a time of strife and humanitarian suffering feels more than just a little trite, so there is a bigger picture here. Moreover, no-one knows what is going to happen next – not even President Trump and his advisers. In this context it is worth bearing in mind the American baseball player Yogi Berra’s aphorism that, ‘It’s tough to make predictions, especially about the future.’
“But in the very confined context of global markets, investors do know that five of the world’s 10 largest oil producers are to be found in the Middle East, in the shape of Saudi Arabia, Iraq, Iran, the UAE and Kuwait, while a fifth of global crude supplies are shipped through the Strait of Hormuz. In addition, Qatar is one of the three largest exporters of liquified natural gas. Therefore, any sustained conflict could conceivably affect supply.
“This helps to explain why the price of Brent crude oil is up by 15% and the European benchmark for natural gas, the Dutch TTF price, by nearly three-quarters since the outbreak of fighting last weekend.
Source: LSEG Refinitiv data
“The question now is whether the commodity prices make sustained gains after a lengthy period in the doldrums. The increases of 2022, in the wake of the Russian attack on Ukraine, did not last long, but the share prices of Shell and BP have made steady gains in the past five years, despite uncertainties over the long-term future of hydrocarbons, questions over the producers’ strategy with regard to renewable energy and, in BP’s case, some relatively quick-fire changes of chief executive.
Source: LSEG Refinitiv data
“Despite those issues, and fairly torpid commodity prices, the Oil & Gas Producers sector had been the ninth best out of 37 within the FTSE 350 index as of the end of February, before the attacks on Iran began, and it ranked first of 11 super-sectors that make up the S&P Global 1200 index.
Source: LSEG Refinitiv data, as of the close on 27 February 2026.
“This improved momentum may have been the result of value-hunters looking for potential bargains, or even investors rebalancing their portfolios away from technology companies on the grounds of valuation, worries over the spending boom on artificial intelligence and indeed the potential impact of AI upon many companies’ business models, including software specialists.
“Either way, BP and Shell are forecast to contribute between 10% and 11% of the total pre-tax profit that analysts expect the FTSE 100 to generate across 2026 and 2027.
Source: Company accounts, Marketscreener, analysts' consensus forecasts.
“The two oil majors are also expected to combine to provide 11% to 12% of aggregate FTSE 100 cash returns, in the form of dividends and share buybacks, in 2026 and 2027. That is down from the past couple of years as BP has halted its buyback, and it does only include the buybacks announced by Shell to date this year. But there could be more.
Source: Company accounts, Marketscreener, analysts' consensus forecasts.
“These data points look interesting for three reasons:
- First, their combined stock market capitalisations come to 10% of the FTSE 100’s £2.6 trillion total, which you could argue is about right given current consensus forecasts for their contributions to profits and cash returns in the next two years. But that begs the question of what if oil and gas prices surprise on the upside, or the downside, for whatever reason.
- Second, the forecast percentage profit contribution is well below the 20-year average of 20%. This implies analysts do not expect a sustained increase in oil and gas prices, either because of the switch to renewables, sluggish global growth or increased supply thanks to technological improvements relating to shale production and offshore, deep-water exploration. The forecast contribution is also well below prior peaks of nearly 40% in 2008 and 30% in 2022, when oil spiked, albeit briefly, to $147 and $125 a barrel respectively.
- Third, the forecast cash returns contribution is below the 20-year average of around 18%, and the prior peaks of some 29% in 2009 and 2019. Again, this suggests little is priced in by way of sustained increases in hydrocarbon prices and thus Shell and BP’s cash flow and profits.
“The oil companies themselves have responded to long-term questions about demand for oil by keeping investment on a tight rein.
“Their capital expenditure-to-sales ratio is only just above the long-run average of 7% and the figure has run pretty consistently below that since 2016. This may reflect more efficient production technology and methods, but the totals do include renewables, too, so neither BP nor Shell has been investing aggressively to increase output.
Source: Company accounts, Marketscreener, analysts' consensus forecasts for BP and Shell.
“Should demand surprise on the upside, or supply be disrupted, it may not be easy to conjure up output increases to compensate, even if US production does continue to rise thanks to the ongoing boom in shale output and President Trump’s exhortation to ‘drill, baby, drill.’
“The picture is the same across the Western world’s seven oil majors – capex-to-sales is just above the long-term average after a long period below it.
Source: Company accounts, Marketscreener, analysts' consensus forecasts for BP, Chevron, ConocoPhillips, ENI, ExxonMobil, Shell and TotalEnergies.
“Someone seems more interested in oil stocks, since the S&P Global 1200 Energy sector index is setting new all-time highs, although it is doing so almost unnoticed, given how the same benchmark’s total stock market valuation languishes near all-time lows relative to that of the S&P Global 1200 index in total.
“This suggests that investors are still sceptical on the long-term future for oil demand, or at least sustained increases in oil and gas prices, while those investors who run strict environmental, social and governance (ESG) screens will maintain their view that the sector is to be avoided for a wide range of reasons beyond mere economic ones.”
Source: LSEG Refinitiv data.
