Oil price outlook in 2026: Surplus supply dilemma and geopolitical tensions
The headline for oil moves is that oversupply is limiting gains despite geopolitical risks.
Crude oil prices are relatively supported going into 2026, but the overall outlook is for prices to remain range-bound, with a projected global oversupply offset by ongoing geopolitical tensions with no sustained impact on supply so far.
OPEC+ and its role in supporting the oil market
Oil received additional support after OPEC+ announced on November 30 that it would stick to its plan to stop increasing production through the first quarter of 2026, in response to expectations of a global oil surplus.
At its meeting on November 2, OPEC+ agreed to increase production by 137,000 barrels per day in December, before deciding to suspend the increase in early 2026, in an effort to contain supply pressures.
According to the International Energy Agency, the oil market is expected to record a record surplus of 4 million barrels per day in 2026, posing significant challenges to any sustained price rises.
OPEC+ is still seeking to fully restore the 2.2 million bpd of production cuts it imposed in early 2024, with only about 1 million bpd recovered so far.
OPEC and US production: Additional pressure on prices
OPEC crude oil production in November fell by 10,000 barrels per day to 29.09 million barrels per day, but the slight decline was not enough to change the overall market picture.
US production continued to exceed expectations, with the US Energy Information Administration (EIA) raising its estimate of crude oil production in 2025 to 13.59 million barrels per day, adding to fears of continued oversupply.
U.S. inventories reflect oversupply U.S.
crude oil inventories fell by 1.934 million barrels in the last week of December, the biggest weekly decline since mid-November, exceeding market expectations, recent data showed.
However, the decline did not change the overall picture, as commercial inventories ended the year at 423 million barrels, a level above the historical average, reflecting a clear global oversupply.
Meanwhile:
- Gasoline inventories rose by 5.845 million barrels.
- Distillate inventories increased by 4.977 million barrels.
This highlights continued pressure in the refined products market.
Geopolitical factors: Temporary support for prices
Oil prices are receiving limited support from several geopolitical developments, including:
- U.S. blockade of Venezuelan oil tankers
- U.S. strikes on ISIS positions in Nigeria, an OPEC member
Despite the sensitivity of these events, their impact has been limited and temporary, and has not turned into major supply disruptions.
Upside risk scenarios in 2026
The main bullish scenario remains contingent on real and sustained losses in global supplies, which could reduce the projected surplus:
- The U.S. detention of Iranian oil tankers, which exports about 1.6 million barrels per day.
- Escalating attacks on Russian oil tankers in the Black Sea, which export around 780,000 barrels per day
- Declining exports of Russian oil products, which could drop sharply if a permanent peace
deal is reached If these scenarios materialize, markets could be forced to reprice risk.
Oil majors are betting on the long term
Despite the relatively weak outlook for 2026, oil majors are bullish on the long term, increasing their exploration and investment spending and preparing for new projects to come online late in the decade.
Middle Eastern countries, led by Saudi Arabia and the UAE, are leading the wave of new investments in the oil and gas sector.
Western oil majors may take advantage of any price declines in 2026 to make acquisitions of struggling companies, capitalizing on their strong balance sheets.
China and global inventories
The data indicates:
- OECD inventories rose by 18 million barrels in 3 months.
- China will add about 120 million barrels to its stockpiles in 2025.
- Expect storage to increase to 750,000 barrels per day in the first half of 2026.
China's non-transparent policy of building inventories is expected to remain a key factor in balancing the market.
Summary of oil price forecasts in 2026
2026 looks set to be a pivotal year for global oil markets, as the forces of structural oversupply grapple with persistent geopolitical risks.
While the baseline scenario points to prices moving in the $55-64/bbl range, the potential for a drop to $40 remains if economic pressures worsen or OPEC+ fails to manage supply.
Top Indicators to Watch in 2026
- OPEC+'s regular meetings and the extent to which members adhere to production policies
- The pace of global stockpile building, especially in China and the Organization for Economic Cooperation and Development (OECD) countries
- Geopolitical developments in Venezuela, Russia, Nigeria and the Middle East
- The health of the global economy and its impact on oil demand growth
