Oil outlook 2026: Surplus keeps Brent near $58, but long-term supply risks loom

The global oil market heads into 2026 with contrasting narratives: a near-term surplus that promises softer prices and a structural supply challenge that could drive volatility later in the decade. Oxford Economics forecasts Brent crude to end 2026 at around $58 per barrel, easing to $55 in 2027 — well below consensus expectations — on the back of a persistent surplus exceeding 2 million barrels per day (mbpd). This abundance stems from robust supply growth, projected at 1.6 mbpd next year, lifting global output to roughly 106 mbpd, while demand rises more modestly to 104 mbpd.

The supply upgrade reflects stronger-than-expected US shale resilience and faster ramp-up of Brazilian projects. Despite falling rig counts and West Texas Intermediate (WTI) prices expected below $55, productivity gains and longer laterals are enabling US output to grow by about 400,000 barrels per day. Latin America remains a standout contributor, with Brazil and Guyana adding around 1.6 mbpd across 2025–26. OPEC is also set to unwind production cuts gradually in the second half of 2026, adding nearly 1 mbpd, primarily from Saudi Arabia and the UAE.

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On the demand side, Oxford Economics sees growth slowing to 600,000 bpd in 2026, concentrated in emerging markets and OPEC economies, while consumption in advanced economies plateaus amid efficiency gains and electrification. China remains a key driver, supported by manufacturing and petrochemicals, even as EV adoption accelerates. US demand, by contrast, is expected to decline structurally.

This short-run picture of abundance contrasts sharply with the longer-term outlook highlighted by Ole Hansen, Head of Commodity Strategy at Saxo Bank. “On the surface, supply looks ample,” Hansen notes. “Inventories have risen, demand growth has cooled, and parts of the curve trade with enough softness to keep macro-focused traders relaxed. But beneath that veneer sits a deeper structural tension: the world still needs large volumes of new oil supply well into the coming decades, and current price levels are probably not sufficient to incentivise it.”

Hansen warns that the market is underestimating the relentless depletion of existing fields — 6–8 mbpd annually — which requires investment of roughly $500 billion per year just to maintain current output. “It effectively means the global industry must replace a ‘new Saudi Arabia’ every couple of years just to hold production steady,” he says. Without sustained capital flows into upstream projects, the industry risks a supply crunch by the early 2030s.

Spare capacity offers limited reassurance. “Saudi Arabia and the UAE remain the only major producers able to raise output at short notice, and both are now operating closer to their expanded capacity levels,” Hansen explains. US shale — the world’s “just-in-time” supplier — is showing signs of plateauing, with growth of 360,000 bpd in 2025 unlikely to repeat. “If WTI spends another year below $60, US production could flatten or even decline,” Hansen cautions.

The International Energy Agency’s recent revision of long-term demand adds urgency to this investment challenge. Oil consumption is now projected to rise well beyond 2040, potentially approaching 2050, reversing earlier expectations of a pre-2030 peak. Hansen sums up the dilemma: “The market must choose between two paths. It can allow prices to firm gradually — supporting the drilling, upstream expansion and long-cycle projects required over the coming decade — or it can risk far sharper price increases later as scarcity becomes the dominant driver.”

Risks to the 2026 outlook remain two-sided. Upside risks include a faster-than-expected US shale slowdown, Russian export disruption, or OPEC restraint, all of which could tighten balances and lift prices. Downside risks, while less likely, are more material: a larger surplus could trigger rapid inventory builds in Q1, leading to sharper price corrections. Broader geopolitical shifts — such as a resolution of the Russia-Ukraine conflict or political change in Venezuela — could also add barrels to the market.

Bottom line: 2026 may feel like a year of plenty, with Brent anchored in the high $50s, but the seeds of future tightness are being sown. As Hansen warns, “Deferring investment only amplifies future tightness. The earlier that price signal appears, the lower the eventual peak is likely to be.”

Somshankar Bandyopadhyay

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somshankar@khaleejtimes.com

Somshankar Bandyopadhyay is a News Editor with close to three decades of experience. Currently, he manages the business section, ensuring that the top economic and business news of the day reaches its readers.