Published on 13 January 2026

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UPSTREAM ENERGY MARKET UPDATE H1 2026

Published on 13 January 2026

Upstream insurance market enters 2026 with overcapacity and double-digit rate reductions following oversubscribed 1/1 treaty renewals. Oil prices face pressure with Brent Crude at USD62.23/barrel and surplus of 0.5-4.2 million barrels/day, while reinsurers reward strong 2025 performance with improved terms and capital remains attracted to sector.

Upstream industry outlook

The upstream energy market outlook for 2026 is looking a bit uncertain, with oil prices expected to remain under pressure due to swelling supplies and modest demand growth. Brent Crude is projected to average USD62.23 per barrel in 2026, while WTI crude is expected to average USD59.00 per barrel. The oil market is expected to see a surplus in 2026, with estimates ranging from 0.5-4.2 million barrels per day. Global oil demand is projected to grow by 0.5-1.2 million barrels per day. Ongoing political risks will maintain a crucial risk premium, preventing prices from dropping as low as the high supply would suggest.

With a longer-term view demand for Oil and Gas is expected to grow at a CAGR of 8.5% through to 2034. 2026 will likely see oversupply a short term pull back in CAPEX but many of the bigger offshore construction projects already has capital committed with EPC contracts expected to see a marginal 1% year-over-year increase, driven by subsea technology, floating platforms, and LNG projects. The Middle East is expected to account for 24% of forecast EPC award value, driven by brownfield developments and ventures by heavyweights like Saudi Aramco. High supply chain costs, project delays, and softening oil demand may impact spending. Overall, the offshore oil and gas market is poised for nominal growth, with a cautious outlook.

Upstream insurance update

As we look ahead, we are advising clients on the developments in both the direct and reinsurance markets following the 1/1 renewals, as well as providing insights into what they can expect in 2026. The prevailing theme across the market is one of overcapacity. Underwriters' own insurance purchases through their treaties were oversubscribed, with rate reductions in standard Excess of Loss (XOL) programmes reaching double digits. Those purchasing Quota Share (QS) treaties have been able to leverage their distribution to secure higher fronting commissions.

In the reinsurance market, it remains challenging to isolate upstream risks, as these protections are typically purchased as part of broader Energy and Marine programmes. However, regardless of how the portfolio is segmented, both upstream and midstream sectors have performed well this year. The message from reinsurers is clear: "Well done, keep it up, and here are the tools to help you continue." The direct market, however, now faces the challenge of replicating this success while delivering a return on the capital allocated for the 2026 underwriting year.

For capital providers, upstream energy appears attractive from a high-level perspective. 2025 was relatively benign in terms of losses, with blended rate reductions across the portfolio averaging a manageable 11%. Construction premiums in the market also indicate growth. Direct underwriters are reassuring their capital providers, management, and reinsurers that the market remains dynamic and challenging, while committing to maintaining performance. However, the reality for those actively trading in the market is far more complex.

There is a growing concern that Lloyd's and company market capital providers may scrutinise the underlying details more closely. Many risks are facing significant signing challenges, and the availability of full follow capacity for brokers has never been greater. Regional hubs are also entering the market, competing aggressively for market share. The stark reality for 2026 is that, in a declining rating environment, the premium base may not be sufficient to meet collective business plans. This will inevitably result in winners and losers as the year progresses. Upstream rating reductions are almost certain to be in the double digits, and while 2026 may begin with caution, the pace of reductions is expected to accelerate as the year unfolds. Only a series of major insured losses or a significant withdrawal of capacity could potentially halt what appears to be an inevitable snowball effect in the rating cycle.

As brokers, it is our responsibility to navigate these challenges and provide sound advice to our clients. For those clients who prioritise the lowest possible price, are willing to forgo long-term relationships, and are prepared to accept standardised coverage and average claims handling, the potential for significant premium reductions is evident. However, the reality is that most clients value the relationships that have supported their businesses, paid claims, and safeguarded their balance sheets through both favourable and challenging times. These clients are unlikely to favour a disruptive approach to their insurance programmes. They do not want to face last-minute uncertainty, and as brokers, we must tread carefully. While failing to complete an insurance programme can have consequences, adopting an overly conservative approach risks losing clients to more aggressive competitors who are willing to challenge the status quo. Striking the right balance between securing the best outcomes for our clients and maintaining long-term relationships will be critical as we navigate the complexities of the 2026 market.