EIA Forecasts Sharp Decline in Oil Prices by 2026 Due to Oversupply Risk

EIA Forecasts Sharp Decline in Oil Prices by 2026 Due to Oversupply Risk

The U.S. Energy Information Administration (EIA) predicts that Brent crude oil prices could drop significantly over the next two years due to supply exceeding demand.

Specifically, the EIA forecasts that Brent crude prices will fall by 8% to an average of $74 per barrel in 2025 and further decline by 11% to $66 per barrel in 2026. This significant drop reflects a growing imbalance between supply and demand.

"We anticipate downward pressure on oil prices to persist for most of the next two years as we expect global oil production to outpace global oil demand," the agency stated in its short-term energy outlook report released on January 13.

Three main factors are driving this trend:

1. Changes in OPEC+ Policy
   After maintaining production cuts since 2022, OPEC+ is preparing to increase output. This process, initially planned for October 2024 but delayed multiple times, will begin in April 2025 and continue through the end of 2026.

2. Strong Growth in U.S. Oil Production
   The U.S. oil industry, particularly in the Permian Basin, is experiencing robust growth. This resource-rich region is expected to account for over half of total U.S. crude oil production by 2026, significantly contributing to global supply.

3. Sluggish Demand Growth
   Oil demand growth remains slow and has yet to recover to pre-pandemic levels. Notably, the global demand for oil is shifting toward Asia, with India emerging as the largest driver of demand in the EIA's forecast.

As a result, the oil market is projected to face a surplus of approximately 300,000 barrels per day this year. This surplus could rise to 800,000 barrels per day by 2026—a significant oversupply that will exert strong downward pressure on prices.

However, this outlook could change due to geopolitical factors.

The EIA noted that its forecast was made prior to the Biden administration's imposition of new sanctions on Russia's oil industry. These measures could impact Russia's oil supply to the global market, thereby affecting the global supply-demand balance.

The anticipated drop in oil prices is expected to benefit consumers, with U.S. gasoline prices potentially falling to $3.20 per gallon this year and further dropping to $3.00 per gallon by 2026.