UK oil stocks make up a sizeable section of the London Stock Exchange.
This explains why the FTSE index has performed stronger than many other major global stock indexes in 2022. Soaring oil prices — and the impact that this has had on oil stocks’ profits — have helped keep the broader index afloat.
However, in response to rocketing crude oil values during the cost-of-living crisis, the government imposed an Energy Profits Levy on the industry, which has since been increased multiple times.
These measures mean oil firms will have to pay 38% extra tax through the levy, particularly those operating in the North Sea, with some firms experiencing an effective tax rate of up to 78%.
Previously, the temporary levies were due to expire at the end of 2025. However, they have since been extended until March 2028.
This exceptional level of taxation has caused a lot of UK oil stocks to diversify their operations to other parts of the world due to its impact on the economic viability of production in the North Sea.
So, with all this in mind, are they a good investment in 2026? Let’s take a look.
What are oil stocks?
Oil stocks are companies within the energy sector that process, drill, produce, transport, and store oil.
An oil company can operate in one or more of the following three areas:
- Upstream — Broadly speaking, this involves exploring for oil deposits, drilling to test their commercial feasibility, and finally producing oil itself. Firms at this part of the process are known as exploration & production companies (or E&Ps).
- Midstream — UK oil stocks here process, store, and transport oil, natural gas, and natural gas liquids. They can also be involved in the trading of these energy products.
- Downstream — This relates to the refining of crude oil into a product like petrol, diesel, or lubricants. It also applies to the sale of products to the end customer, as in the case of petrol filling stations.
Top oil stocks in the UK
Let’s now look at three of the largest oil companies on the London Stock Exchange as of January 2026. Each is listed on the FTSE 100 index.
| Oil producer | Market Cap | HQ | Description |
| Shell (LSE:SHEL) | £155.98bn | London, UK | A fully integrated oil stock operating upstream, midstream, and downstream. |
| BP (LSE:BP.) | £69.81bn | London, UK | A major crude oil producer operating in around 70 countries. |
| Harbour Energy (LSE:HBR) | £2.93bn | Edinburgh, UK | A North Sea-focused oil producer. |
Shell
Shell is by some distance the largest UK oil stock out there (and the world’s fifth-largest by market cap). As of the end of 2025, the Footsie firm’s proven & probable reserves stood as a colossal 20bn barrels of oil equivalent.
The business was previously known as Royal Dutch Shell in a nod to its Anglo-Dutch heritage. But following a restructuring, it shortened its name, dropped the dual-class share structure and relocated its headquarters from the Netherlands to Britain.
The oil company believes its Shell Plc and its single-class share structure will provide big benefits for shareholders. It will boost the firm’s ability to make share buybacks and reduce risk for investors by bringing its structure in line with other oil stocks, it says.
Shell is a major upstream, midstream, and downstream operator. But has been steadily diversifying its portfolio of renewable energy projects. Nevertheless, these remain a relatively small portion of its ongoing operations with renewable spending sitting below 10% of its total capex.
BP
BP is another oil major with integrated operations that span the globe. But like Shell, the business has taken a big blow following Russia’s invasion of Ukraine in early 2022.
A few years ago, like other major oil companies, BP was aggressively improving its own green credentials and taking steps to achieve 20GW of renewable capacity by 2025, and 50GW by 2030. However, following a strategic reset, the firm has rethought these ambitions.
Its 50GW renewable target has been abandoned, with plans to ramp up oil & gas production and dispose of underperforming renewable assets.
Despite pressure to reduce its carbon footprint from activists, higher interest rates, falling energy prices, and uncertainty in renewable energy subsidies, have significantly slowed investment in the sector versus proven oil & gas operations.
Harbour Energy
Harbour Energy is the UK’s largest independent oil and gas explorer and producer. It was formed after the merger of Premier Oil and Chrysaor in 2021.
This oil company generates around 90% of its production from its British assets, and 93% of its reserves are in UK waters. Last year’s merger has made it a leading player in the North Sea, and its assets include the Great Britannia Area, the J-Area, and the Catcher Area.
Premier Oil’s push into Southeast Asia means that Harbour Energy also produces oil from offshore projects in Indonesia and Vietnam. In total, the firm has claims in 48 oil and gas-producing fields across the globe. The business also owns stakes in exploration and development projects off the coast of Norway and Vietnam.
What to consider before investing in oil stocks
Here are a few things to keep in mind before you start investing in oil stocks:
1. Oil price
Oil is a commodity that, like most raw materials, is highly sensitive to broader economic conditions. When GDP is growing, demand is up, and prices can be expected to rise. When the global economy is shrinking, the opposite can be expected.
Investing in oil stocks, then, can be considered a broader play on economic conditions. But it’s important to remember that oil prices can move wildly irrespective of the state of the world economy.
Take again oil’s recent surge to multi-year highs following Russia’s invasion of Ukraine. Brent crude prices in London soared to their highest level since 2008 at $139 per barrel as worries over Russian oil supply ignited. That’s even as investors fretted over the impact the military campaign would have on global growth.
Since then, the price of Brent crude oil has fallen and, since 2022 been stuck on a steady downward trajectory, sitting close to $63 per barrel as of January 2026. And the latest forecasts from the US Energy Information Administration have projected further declines throughout 2026 to as low as $53.34 per barrel.
2. The OPEC+ factor
Oil prices are also highly dependent upon the supply strategy of the Organisation of the Petroleum Exporting Countries (or OPEC) group of nations. The cartel includes 13 countries, such as major oil-producing nations like Saudi Arabia and Iraq.
In 2017, the OPEC+ group was established, which marked collaboration between OPEC and an extra 10 countries. Other major producers like Russia are part of this enlarged collective, and together these nations account for around half of the total oil supply and a whopping nine-tenths of crude supplies.
Consequently, any decision they make on how much oil to pump has significant implications for oil prices and, consequently, profits of UK oil stocks.
3. The rise of renewable energy
The returns that one can make by investing in oil depend on both the geopolitical and macroeconomic landscape.
It is also highly sensitive to the accelerating transition to low-carbon energy sources in response to global warming. Therefore, major oil companies like BP and Shell are investing in boosting their exposure to renewable energy, albeit at a slower pace compared to a few years ago.
It’s also important to recall that renewable energy still forms a small part of their operations today. And oil majors continue to dedicate the lion’s share of capital expenditure to fossil fuels, too. Nine-tenths of Shell’s spending is dedicated to oil and gas.
Crude oil and gas still have a critical part to play in everyday life. And by extension, the role of UK oil stocks remains critical. However, investing in oil and oil companies does involve a notable amount of risk as the world slowly pivots towards green energy.
Are oil stocks right for you?
Oil stocks have long been popular buys for those seeking to generate passive income. During the good times, fossil fuel providers can watch on as profits and cash levels gush higher. This has often meant shareholders can grab a piece of the bounty by way of gigantic dividends.
Up until the pandemic, Shell hadn’t reduced its annual dividend once since the Second World War. Very few global stocks can lay claim to that kind of record.
However, it’s important to remember that the profitability of oil stocks can be highly volatile. And this can have a significant impact on shareholder returns.