Oil and fuel prices to remain high throughout the year: Deloitte report

Deloitte projects North American oil to average $85/boe in 2026 versus $67 in 2025, while WTI was trading above $116/bbl after prices surged more than 50% since the Middle East conflict began. The report warns that the Iran–U.S. war and an estimated ~20% disruption of oil and gas transit through the Strait of Hormuz will keep gasoline, diesel and jet fuel prices elevated, creating material consumer and economic pressure; Calgary-based Sproule projects a similar $84/bbl in 2026.

Analysis

The immediate market reaction understates where the next margin redistribution will occur: logistics and refining optionality will capture outsized share of the shock. Refiners with export capacity and access to light-heavy differentials can expand realized crack spreads even as headline crude stays volatile, while inland producers face basis squeeze if tanker routes reprice and seaborne barrels reroute to premium markets.

Natural gas dislocations will bifurcate by corridor — abundant Western Canadian supply should sustain domestic price stability while US Gulf and Atlantic hub prices rerate higher because of increased LNG and power burn demand. That flow reorientation is revenue-positive for pipeline toll-takers and liquefaction owners but increases capex and operation risk for midstream constrained by permit and maintenance cycles.

Key reversal catalysts are operational and political, not purely demand-driven: rapid reopening of chokepoints, targeted strategic petroleum releases, or a material acceleration in US shale drilling and completion activity can compress spreads within quarters. Conversely, persistent insurance/freight premia and seasonal jet/diesel demand will keep real consumer pain higher for multiple quarters, elevating cross-sector inflationary pass-through into transportation, mining, and cyclical services.

Key Decisions for Investors

• Long integrated/refining exporters: Buy VLO (Valero) and/or MPC (Marathon) equity or 3–6 month call spreads to capture expanding crack spreads; target asymmetric payoff if spreads widen — downside: refinery margin collapse if seaborne flows normalize quickly; aim for 2:1 reward:risk with 20–25% position stops.
• E&P selective exposure: Long FANG (Diamondback) or PXD (Pioneer) via stock or 6–12 month call calendars to play upstream free cash flow leverage to sustained price regime; hedge with modest short on higher-beta service names (HAL) to limit drilling-volatility; reward driven by FCF turn-up, risk is rapid shale restart capping price — size as tactical overweight (5–8% of energy sleeve).
• Midstream toll-takers and LNG: Long ENB (Enbridge) or LNG (Cheniere) for 6–12 months to capture durable fee income from rerouted flows and tight LNG arbitrage; use covered calls to finance basis; principal risk is regulatory/pipeline outage that reduces throughput — expected steady yield and lower volatility than upstream.
• Short transportation/airlines defensively: Short AAL or buy 3–6 month puts on AAL/DAL or implement pair trade long VLO short AAL to capture refining vs airline margin divergence; airlines are high gamma to jet fuel spikes — set clear exit if oil-related forward curves collapse or transits reopen.