The U.S. Energy Information Administration (EIA) forecasts a drop in global oil prices, projecting that the price of benchmark Brent crude will decline from an average of $81 per barrel (b) in 2024 to $74/b in 2025 and $66/b in 2026. This decrease is primarily driven by strong growth in global oil production, especially from non-OPEC+ countries, and slower demand growth. These factors are expected to exert downward pressure on oil prices, even as geopolitical risks and OPEC+ production cuts attempt to stabilize the market. The forecast was made prior to the United States’ announcement of additional sanctions on Russia’s oil sector, which could further limit Russian oil exports.
The price decline is expected to continue into 2026, with oil prices averaging $66/b. This is due to rising production from countries outside of OPEC+ and demand growth falling short of pre-pandemic levels. As production outpaces consumption, global oil inventories are expected to increase, which will keep oil prices under pressure. OPEC+ is anticipated to maintain its voluntary production cuts in 2025 and 2026 in an effort to prevent further price drops.
Lower prices are expected to lead to reduced drilling activity and investment in U.S. oil production. As a result, U.S. production of crude oil and other liquids will see only a small increase in 2026.
Uncertainty Clouds Oil Supply and Demand Forecasts
The EIA emphasizes the uncertainty surrounding oil supply and demand, which could significantly impact prices. Changes in OPEC+ policies and shifts in U.S. production could alter the market dynamics. If OPEC+ countries continue to lose market share to producers outside the group, there could be internal disagreements, possibly leading some members to boost production or exit the agreement. Similarly, slight changes in oil prices could impact the growth or decline of U.S. crude oil production. Economic fluctuations and other systemic changes could also alter the global demand for oil, deviating from the EIA’s current forecast.
Strong Oil Production Outside OPEC+ to Continue in 2025, But Faces Challenges in 2026
Oil production from non-OPEC+ countries has been growing rapidly, offsetting the reduction in OPEC+ output. In 2024, while OPEC+ reduced its production by 1.3 million barrels per day (b/d), countries outside the group increased their output by 1.8 million b/d. This trend is expected to continue in 2025, although growth may slow down in 2026 as OPEC+ gradually unwinds its production cuts.
The growth in global oil production over the past two years has been driven mainly by North and South American countries, especially the United States, Canada, Guyana, and Brazil. In 2024, these four nations alone increased production by 1.1 million b/d. The EIA expects them to add another 1.0 million b/d in 2025 and 0.9 million b/d in 2026. However, concerns over infrastructure limitations and delays in project launches could hinder the continuation of this strong production growth.
The U.S. is projected to reach an all-time high in crude oil production in 2025, with an average of 13.5 million b/d. However, production growth is expected to slow down in 2026, with a slight increase to 13.6 million b/d. The EIA’s forecast for U.S. production is highly sensitive to oil price fluctuations, and any significant deviation from the expected price could impact production levels.
OPEC+ Production Cuts: Will They Continue?
OPEC+ members have been reducing oil production since April 2023 in response to rising global inventories and declining prices. The group’s latest production agreement, made in December 2024, extends the timeline for easing production cuts into 2026. However, the effectiveness of these cuts on oil prices has been limited. Although there were short-term price increases following the announcements, the price of Brent crude was lower in December 2024, averaging $74/b, than when the cuts were first announced in April 2023, when it stood at $85/b.
As global production continues to grow outside of OPEC+, it remains uncertain whether the group will continue adhering to lower production targets. If OPEC+ cuts fail to drive oil prices higher and generate sufficient revenue, internal dissent could increase. Some members might unilaterally boost production or even withdraw from the agreement.
Geopolitical risks, particularly in the Middle East, continue to pose threats to oil supply, even though recent conflicts have not significantly disrupted oil exports. Tensions in Syria and the potential for further sanctions on OPEC+ countries, such as the U.S. sanctions on Russia, also add uncertainty to the EIA’s forecast.
Global Oil Demand Growth Below Pre-Pandemic Levels
The EIA anticipates that global oil demand will grow at a slower pace than in the years before the COVID-19 pandemic. In 2024, global oil consumption grew at a slower rate compared to the pre-pandemic period (2010–2019). The EIA expects this trend to continue, with global liquid fuels consumption increasing by 1.3 million b/d in 2025 and 1.1 million b/d in 2026. These figures are lower than the pre-pandemic average of 1.5 million b/d.
In China, liquid fuels consumption is expected to grow more slowly than before the pandemic. While the Chinese government plans to stimulate its economy, the rate of growth in oil consumption could be affected by a shift towards electric vehicles and alternative fuels. This introduces significant uncertainty into the EIA’s forecast for China’s oil demand.
In the U.S., the forecast assumes moderate GDP growth and stronger industrial production, which will boost demand for diesel, primarily used in trucking. However, the growth in U.S. oil consumption is also uncertain and depends on various economic factors, including the pace of industrial recovery and energy transitions.
Conclusion
The EIA’s forecast points to lower oil prices through 2026, with strong production outside OPEC+ and slower global demand growth being the key drivers. While OPEC+ production cuts may help stabilize prices in the short term, uncertainties surrounding geopolitical factors, U.S. production, and global consumption make the future of oil prices difficult to predict.
Related Topics:
- Iraq’s Oil Exports to the US Increase to 229,000 BPD, Reports EIA
- Argentina’s Crude Oil and Natural Gas Production Nears Record Highs: EIA
- EIA Reports Smaller-Than-Expected Drop in Crude Inventories