The announcement of a Memorandum of Undertaking between the US and Iran on June 18 sent oil prices retracing from over $100 per barrel back to the $72–$74 range. Markets exhaled. Investors, it seems, concluded the energy problem had been solved. Mark Lacey, Head of Thematic Equities at Schroders, is not convinced. In a 17-page analysis published in July 2026, Lacey argues that the relief rally misreads the situation entirely, and that the structural forces reshaping global energy markets have not only survived the ceasefire — they have been deepened by it.
"Everything's OK" — Until It Isn't
The investor psychology driving current positioning is, in Lacey's telling, straightforward to diagnose. Energy prices spiked dramatically during the US-Iran conflict. Jet fuel and diesel briefly exceeded $150 per barrel, raising legitimate concern that some permanent demand destruction had occurred. With the ceasefire in place and prices retreating, the prevailing view is that supply will resume, markets will rebalance, and the episode will be absorbed.
Lacey does not dismiss these short-term concerns. He acknowledges them plainly. But his central argument is that near-term oil prices "are almost irrelevant" as an analytical tool during periods of pronounced volatility. They do not reflect the underlying tightness in both oil and product markets. What they do reflect, he suggests, is a market that has confused a geopolitical pause for a structural resolution.
A Tighter Market Than It Appears
The oil market is currently undersupplied by approximately 11 million barrels per day. After 100 days of conflict, that equates to a structural shortage of 1,100 million barrels. Global inventories, which might seem to contradict this picture, are being distorted by an IEA-coordinated 400-million-barrel release from strategic petroleum reserves across the US, Europe, Japan and China, combined with demand rationing and China drawing down its own domestic reserves rather than importing at normal rates.
The scale of this intervention is what makes the apparent stability fragile. An executive at one US oil major, quoted by Lacey, puts it with notable directness: "We're approaching inventory levels at unheard-of lows. You can debate whether that's going to hit the bottom in two weeks or three weeks, but once you get to that point, you'll see prices recover."
Lacey identifies two specific demand drivers that will reassert once the ceasefire stabilises conditions. First, the US Department of Energy's SPR refill program: structured as a loan requiring oil companies to return 1.25 barrels for every one borrowed, it locks in commitments to return roughly 200 million barrels starting in late 2026 through 2028. This refill alone will add approximately 0.7 million barrels per day of demand on top of normal annual demand growth of around 1.0 mb/day in 2027. Second, China's reserve drawdowns, which have masked a collapse of 22% in official import data, will need to be restored, adding further demand pressure.
Against this backdrop, Lacey sees oil prices trending toward the $80–$90 per barrel range over the next 12 to 24 months — structurally higher than the current consensus of $65–$70 per barrel for 2028 onwards. Non-OPEC supply growth, meanwhile, offers little relief. US shale has, in his words, "firmly moved into harvesting mode, not growth," with companies facing the challenge of replacing 2.5 mb/day of base decline.
The Investment Deficit That Decades of Caution Built
The supply constraint is not an accident. It is the direct consequence of a decade of capital discipline imposed on the industry following the 2016 energy debt crisis. Adjusted for the growth in oil and gas markets since 2015, net investment has run at less than $15 per barrel of oil and gas produced — estimated to be 40% below what is required to grow net reserves. For exploration specifically, net investment has been running at 60% below historic levels. Reserve lives, Lacey notes, have hit critical levels.
The Iran/US war has compounded this by delaying upstream projects in the first half of 2026, as management teams declined to commit capital into near-term uncertainty. Assuming the ceasefire holds, Lacey describes the setup for final investment decisions as "bullish over the next 24 months." The offshore drilling fleet is at 95% utilisation, onshore at 85%, and inflationary pressure across supply chains means projects that previously broke even at $60 per barrel will likely require $70–$72 per barrel to justify sanction.
Natural Gas: The Structural Story the Market Is Missing
If the oil picture is one of deferred reckoning, the natural gas story is one of accelerating demand that the market has not yet priced. Global gas demand growth is expected to continue at record rates until 2035, driven by LNG imports and surging domestic US consumption — particularly from data centres and dedicated power plants.
Nearly 80% of data centre power demand additions, estimated at over 100 GW between 2025 and 2032, are expected to be off-grid. Permitting constraints are pushing developers toward gas, where near-term policy support in the US and Canada is clear. One industry source cited by Lacey states that "gas-fired US power generation tenders are at unprecedented levels, and amount to around 50GW of additional capacity right now" — equivalent to roughly 9 billion cubic feet per day of additional gas supply needed over five years.
The Qatar LNG outage — where structural damage from the conflict has impacted 17% of that country's export volumes, with repairs estimated to take up to five years — has redirected global buyers toward North American supply. Germany's SEFE is investing in Western Canadian LNG. Japanese buyers are taking direct ownership stakes in US LNG projects out of Louisiana. US gas producers are negotiating 20-year supply contracts with utilities at prices well above current levels. Canadian producers are insisting on floor prices with tolling structures. The long-term contracting culture of the gas industry is being reset.
Capital Discipline and the Case for Energy Equities
Throughout the report, Lacey returns to a theme that may be the most immediately actionable for investors: the sector is generating extremely high free cash yields, and management teams are returning the majority of it to shareholders. Many major producers are committing 75% to 90% of free cash flow to dividends and buybacks. Share repurchase programs are being maintained not as a function of optimistic commodity price assumptions, but because management teams see their share prices at a significant discount to net asset value.
Consensus estimates for 2027 assume $69 per barrel WTI crude, $3.50 per Mcf US natural gas, and €33.60 per MWh TTF. Lacey regards these as too low, and sees potential upside to energy equity performance coming from both earnings exceeding expectations and sector re-rating over time. Energy equities, trading at a significant discount to the broader market, offer what he describes as "extremely attractive opportunities" — particularly given balance sheet health that makes current dividend yields sustainable.
5 Key Takeaways for Advisors and Investors
- The ceasefire is not a rebalancing. Oil markets remain structurally undersupplied. Strategic reserve drawdowns have masked the depth of the shortage. Once SPR refill programs activate in late 2026 and China restores its inventory, demand pressure will reassert regardless of what happens at Hormuz.
- The supply response is years away, not months. A decade of underinvestment, with exploration spending 60% below historic levels and net capex per barrel 40% below reserve-replenishment requirements, cannot be corrected quickly. Shale is in decline mode. Offshore project timelines are long, cost inflation is real, and the drilling fleet is nearly fully utilised.
- Natural gas is a long-cycle structural growth story. Data centre power demand, energy security diversification across Europe and Asia, the Qatar outage, and the pivot to 20-year gas contracts all point to a sustained demand environment well into the next decade. North American producers are the primary beneficiaries.
- Consensus commodity price assumptions for 2027 appear too conservative. The market is pricing oil in the mid-$60s and gas at $3.50/Mcf. If Lacey's structural thesis is correct, earnings revisions in the energy sector have room to move materially higher, creating a double catalyst — earnings upside plus valuation re-rating.
- Energy equities offer a compelling income and value case right now. With 75% to 90% of free cash flow being returned to shareholders, balance sheets in historically strong condition, and sector valuations at a significant discount to the broader market, the risk-reward profile for energy equity exposure is asymmetric — particularly as a portfolio diversifier relative to concentrated technology exposure.
Footnote:
Lacey, Mark. "What Would a Ceasefire Mean for Global Energy Markets?" Schroders, 7 June 2026, www.schroders.com/en-us/us/intermediary/insights/what-would-a-ceasefire-mean-for-global-energy-markets-/.
