Oil and gas: investment trusts comment on opportunities and risks

Impact of the conflict on the UK’s energy supply 

Thomas Moore, Lead Manager of Aberdeen Equity Income Trust, said: “The Iran war has driven UK energy policy to front page news, with politicians and trade unions intervening to point out how North Sea restrictions are impacting energy security and employment. As the UK becomes increasingly reliant on overseas countries for its oil and gas supply, the pressure is growing on the UK government to prioritise energy security. 

“Reducing domestic output might help politicians claim that they are achieving their net zero ambitions, but the UK is still consuming the same amount of oil and gas, whether we produce it domestically or not. Additional emissions are generated from the transportation of imported oil and gas. At the same time, the UK is forsaking high-skill jobs and tax revenues by restricting the development of new fields. Meanwhile Norway, with its burgeoning $2 trillion oil fund, continues to grow annual production of oil and gas. 

“This is becoming an issue for voters on the doorstep, putting pressure on the UK government to change its North Sea licensing and taxation policies. While the debate rumbles on, we observe the low valuations of UK oil and gas stocks and consider how these stocks could re-rate if the restrictions are eventually eased on UK oil and gas production.”

Outlook for the oil and gas sector

Mark Hume, Co-Manager of BlackRock Energy and Resources Income Trust, said: “The huge disruption to oil and natural gas supplies in the Middle East over the past three months has materially tightened energy markets near-term. The impact on liquified natural gas exports, primarily to Asia, has been even more pronounced. Heading into 2026, oil markets appeared modestly oversupplied, and we expected rising oil demand to gradually tighten the market towards the latter part of 2026 and beyond. The current disruption to oil supply has already materially tightened the market, particularly in oil products such as diesel and jet fuel. We continue to see stronger-for-longer demand for oil and natural gas over the medium term which is not reflected in energy stock prices.

“Crucially, the Iran conflict has placed a focus on energy security and countries appear to be evaluating energy policy. Heightened geopolitical uncertainty is reinforcing the strategic importance of secure, resilient energy systems, supporting continued investment across upstream supply, infrastructure, and reliability‑focused energy assets. Capital discipline across the sector remains strong, balance sheets are robust, shareholder returns are attractive, and demand for oil, gas and electricity generation continues to grow. Taken together, we believe this represents one of the most compelling medium-term setups for the energy sector seen in over a decade.”

Sue Noffke, Manager of Schroder Income Growth Fund, said: “The current outlook for the energy sector continues to be shaped by several key factors. Geopolitics remains front and centre as the primary driver of oil prices and supply, especially in the near term. Layered onto this is the persistent uncertainty surrounding how quickly the energy transition will advance and how robust global demand will be.

“The past few years have made it clear just how vital energy security is for both governments and investors. Despite this, the sector has struggled to regain favour, weighed down by environmental, social and governance concerns as well as questions around long-term demand. In response, companies have shifted their focus, allocating capital towards shareholder returns instead of pursuing aggressive exploration strategies.

“It’s crucial to recognise how the sector itself is evolving. Today’s energy companies are no longer just traditional oil producers – they’re broad-based energy businesses encompassing oil, gas, and increasingly power generation. This shift is significant, particularly as global power and liquified natural gas demand continues to rise, driven by structural themes such as improving living standards, urbanisation and electrification in developing regions, and AI infrastructure and electrification demand in developed regions. Meeting this sustained demand won’t be easy, as there are no quick fixes on the supply side.

“For investors, volatility is likely to remain a defining feature, but it’s also opening opportunities to gain exposure to more diversified and cash-generative energy businesses. These companies are increasingly vital to meeting the world’s growing appetite for reliable power. For investors they provide a hedge against enduring higher-for-longer inflation along with robust shareholder returns.”

Anthony Lynch, Manager of JPMorgan Claverhouse Investment Trust, said: “In the near term, the outlook for the energy sector is likely to be heavily influenced by developments in Iran and the potential implications for the Strait of Hormuz, where the situation remains highly uncertain. Against that backdrop, exposure to oil and energy stocks provides a useful hedge against our more consumption-led and cyclical portfolio holdings which may be more vulnerable to rising energy prices and inflationary pressures.

“Longer term, we continue to believe that oil and gas still have an important role to play in energy supply, and that companies with exposure to the sector will be able to generate attractive returns for many years to come.”

Thomas Moore, Lead Manager of Aberdeen Equity Income Trust, said: “We see potential for an upswing in oil and gas capital expenditure in the coming years. The International Energy Agency recently increased its forecast for oil demand, pushing out the date at which oil demand will peak. This is driving a re-rating of the oil and gas sector, as the market reassesses the terminal value of companies across the sector. As energy security rises up the agenda of governments around the world in the context of geopolitical crises and deglobalisation, taxes and incentives are being recalibrated by individual governments to ensure that the industry invests sufficiently in capacity to allow a rebuild of reserves. Against this backdrop, we see the potential for some attractive returns from those stocks benefiting from this increased production and capex, regardless of developments in the Strait of Hormuz.”

James Ashworth, Manager of Brunner Investment Trust, said: “While some sectors and markets currently exhibit low cash flow and dividend yields, many oil companies are generating prodigious amounts of cash. While we expect global oil consumption to decline over the coming decades, we expect the decline to be gradual, with significant cash returned to investors by the energy companies in the interim.”

“At Brunner, energy companies represent an important part of our ‘all weather’ approach. Geopolitical shocks, including those seen in the past few years, often result in the price of oil rising while the wider stock market falls: as such, we see energy companies providing valuable portfolio diversification.” 

“We believe that the high cash flow yields available in the oil sector provide a useful diversification for investors, as much of the market today exhibits relatively low dividend and cash flow yields.”

Which oil company offers the best investment opportunity now?

Anthony Lynch, Manager of JPMorgan Claverhouse Investment Trust, said: “Within the energy sector, our preference is for companies that are focused on both return on capital and return of capital, prioritising disciplined investment alongside consistent shareholder returns.

“Against this backdrop, we believe Shell remains particularly well positioned due to its disciplined approach to capital allocation, including improving operational efficiency, reducing costs and divesting underperforming assets. This has supported stronger shareholder returns through both a growing dividend, which increased by 9% year-on-year in the first quarter, and a counter-cyclical approach to share buybacks.

“In addition, Shell’s position as a global leader in liquified natural gas production provides exposure to what we see as an important transition fuel, given its lower carbon intensity relative to other hydrocarbons. This should help support the durability of returns over the longer term.”

Rebecca Maclean, Co-Manager of Dunedin Income Growth Investment Trust, said: “We hold Gaztransport & Technigaz (GTT), which offers a different way of accessing the energy theme. GTT’s patented membrane technologies are installed in approximately three-quarters of the world's operating liquid natural gas carrier fleet, giving it a dominant market position with high barriers to entry and long-dated order book visibility. 

“Geopolitical events in the Strait of Hormuz have, if anything, reinforced the strategic importance of diversified liquid natural gas supply and the infrastructure that underpins it. GTT operates a capital-light model, meaning it earns royalties on its technology rather than owning physical assets, which, combined with a net cash balance sheet, has historically supported attractive returns to shareholders.”

Importance of sustainability and energy transition plans

James Ashworth, Manager of Brunner Investment Trust, said: “Transitioning from imported fossil fuels to domestic clean energy sources is an urgent focus for many countries. Conflicts in Ukraine and the Middle East have emphasised the risks of relying on imported energy sources. High energy prices in much of Europe, driven by high-priced imported fossil fuels, are proving harmful for the region’s competitiveness. We expect that growth in clean energy generation in the coming decades should help both reduce the volatility of European energy prices and improve the region’s relative competitiveness.”

Rebecca Maclean, Co-Manager of Dunedin Income Growth Investment Trust, said: “Every company in the portfolio is assessed on its sustainability credentials. We want to own businesses that are responsibly run today, those with credible transition plans, and those whose products and services support a more sustainable economy. In every case, we look for evidence of real progress rather than just stated intentions. TotalEnergies, for example, is held as an energy transition company. We believe its balanced approach across oil, gas, electricity and renewables, combined with disciplined capital allocation, should position it well for a changing energy landscape.”

Key risks for investors

Rebecca Maclean, Co-Manager of Dunedin Income Growth Investment Trust, said: “There are short-term, medium-term and long-term risks to consider. Near term, the energy sector remains highly sensitive to geopolitical developments, most recently around disruption in the Strait of Hormuz, which can move energy prices quickly and unpredictably. In the medium term, should production normalise, the pace at which inventories and stockpiles can be rebuilt will be important, alongside any lasting impact on trade routes and infrastructure. Over the longer term, the key risk for the sector is capital allocation. Specifically, whether companies have a clear and disciplined strategy for delivering growth and returns while managing resilience and transition within the energy system.”

Investment trusts with exposure to oil and gas companies