Oil prices to decline as global oversupply builds through 2026: US EIA

Oil prices are set to decline as global supply growth outpaces demand, with Brent crude forecast to fall from an average of $69/b in 2025 to an average of $52/b in 2026, the US Energy Information Administration said Oct. 7.

Global oil stocks are expected to build by an average 2.6 million b/d in the fourth quarter of 2025 and remain elevated throughout 2026, putting downward pressure on prices, the EIA said in its October Short-Term Energy Outlook.

Global liquid fuels consumption growth of 1.1 million b/d annually, driven primarily by non-OECD countries in Asia, will not be sufficient to absorb the supply growth, the EIA said. China's strategic inventory builds have provided some price support this year, but uncertainty remains over whether Beijing will maintain this pace, according to the outlook.

The negotiations related to the Russia-Ukraine conflict could also affect supply, and further sanctions could be put on buyers of Russia's oil, the EIA said in its outlook. "Geopolitical developments, including Ukraine's attacks on Russia's oil ports, have raised market concerns that oil production or exports could be disrupted," the EIA said.

Production growth

The EIA said in a statement that it expects oil production growth to be led by countries outside of OPEC+. Production in South America has been the leading source of growth as new offshore vessels have started up ahead of schedule in Brazil and Guyana this year, the outlook said.

OPEC+ crude production is forecast to increase by 500,000 b/d in 2025 and 600,000 b/d in 2026, the EIA said.

"Although OPEC+ has announced a significant rebound in its oil production targets, EIA expects OPEC+ production will remain below announced targets, preventing inventory builds from accelerating too quickly and limiting the decrease in oil prices," the statement said.

The EIA completed its modeling for the outlook before OPEC+ announced Oct. 5 that it would increase production targets for November 2025.

US crude production hit a record high of 13.6 million b/d in July, and it is expected to hold nearly steady in the coming year, the agency said.

"EIA continues to expect crude oil production will decline from its recent peak as oil prices fall, but it revised its forecasts upward for average 2025 and 2026 US crude oil production to 13.5 million b/d in both years," the EIA said in the statement.

US retail gasoline prices are forecast to drop from $3.10/gal in 2025 to $2.90/gal in 2026, the EIA said. However, planned closures at Phillips 66's Wilmington and Valero's Benicia facilities will limit refinery capacity, the outlook said.

An Oct. 2 fire at Chevron's El Segundo refinery, which accounts for 17% of California's refinery capacity, was announced after the October STEO forecast was completed and adds uncertainty to the forecast, the EIA statement said.

Low product inventories are expected to support strong refinery margins that incentivize the remaining refineries to run at higher rates, the EIA said. "As a result, we forecast refinery utilization will average 91.4% in 2026, up from 91.1% in 2025 and the highest annual average utilization since 2022."

US oil sector pessimism

While the EIA forecasts US crude production to be relatively steady in the coming year, US oil and gas producers have expressed pessimism about maintaining production levels.

In particular, respondents to the Federal Reserve Bank of Dallas' latest quarterly energy survey raised concerns about trade uncertainty and downward price pressures.

"The uncertainty from the administration's policies has put a damper on all investment in the oil patch," one survey respondent said. "Those who can are running for the exits."

However, some oil industry officials are still touting the sector's resilience. "So $65/barrel oil, yeah, it's tough for a lot of the shale producers," Tim Stewart, the president of the US Oil and Gas Association, said during an Oct. 1 Hudson Institute Event.

But that picture could change, Stewart said. "Whenever we go into a low price environment, the American energy sector, particularly my guys, will innovate their way out of that low that low price environment."