Oil prices surge to two-week winning streak as Iran supply fears grip markets
- Analysts expect a significant oil glut through early 2026, with inventories rising and prices forecast to average below $60 per barrel.
- While 2026 looks oversupplied, the futures curve and shifting IEA guidance point to a structural supply deficit emerging after 2027.
- Lower prices risk slowing U.S. shale and non-OPEC+ output, setting up the possibility that today’s glut becomes tomorrow’s crunch.
Rising oil supply amid tepid demand growth has prompted forecasters and analysts to predict a large surplus on the market going into 2026.
All experts and investment banks estimate that the market is accumulating inventories and will continue to do so in early 2026, when oil demand is typically at its weakest in any year.
The forecasts of oversupply vary considerably, but regardless of how large the surplus would be, 2026 will likely be the last year in which the market will have to work through a glut, analysts such as Goldman Sachs say.
Despite the many geopolitical uncertainties, the U.S. Energy Information Administration (EIA) and Wall Street banks are looking at the fundamentals and remain bearish on oil for the next year, forecasting prices to average below $60 per barrel in 2026.
The oil futures curve, however, remains relatively flat without a flip into contango until October 2026, suggesting that market participants are not pricing in a prolonged structural oversupply, Ole Hansen, Head of Commodity Strategy at Saxo Bank, said in an analysis this week.
“In other words, a soft patch is likely, but not a repeat of the 2020–21 imbalance,” Hansen noted.
There is a more important theme in the oil market beyond the expected short-term glut. And that’s a potential structural deficit after 2027, according to Saxo Bank.
This view of a potential supply crunch later this decade and in the early 2030s has become more mainstream in recent months. Concerns about a deficit in the longer term increased after the International Energy Agency (IEA), which has advocated for years for the energy transition and no investment in new oil and gas fields, flipped its narrative.
The IEA said in September that the world needs to develop new oil and gas resources just to keep output flat amid faster declining rates at existing fields. That’s a major shift in its narrative from 2021 that ‘no new investment’ is needed in a net-zero by 2050 scenario.
Last month, the IEA also ditched its forecast of peak oil demand by 2030, and said it expects oil demand to reach 113 million barrels per day (bpd) by 2050 amid rising energy demand everywhere.
The increase in total global energy demand, even in developed economies, with the surge of AI technologies and power demand from data centers, will require all energy sources to meet said consumption needs.
At the same time, upstream investment has dropped in recent years, setting the stage for a supply deficit in a few years’ time.
OPEC, its de facto leader Saudi Arabia, and the other major producers in the Gulf have been warning for years that the oil industry must step up exploration and investment in new supply; otherwise, the world risks a supply shortage.
Saudi Aramco’s CEO Amin Nasser said in October in a speech at the 2025 Energy Intelligence Forum that the energy transition faces a reality check and reality on the ground points not to an energy transition, but to “an energy addition which requires all hands on deck.”
“We also see resilient demand, and the pressing need for long-term investments in supply is now widely accepted,” Nasser said.
The expected glut next year will weigh on oil prices and defer investment in new supply, especially in U.S. shale if prices remain below $60 per barrel.
“The market’s real vulnerability emerges if non?OPEC+ production slows, particularly in the Americas,” Saxo Bank’s Hansen said.
U.S. shale production growth of about 360,000 bpd over the past year is unlikely to be repeated, Hansen added, noting that the U.S. EIA expects total U.S. production to flatten in 2026 and “potentially in my opinion decline should WTI spend another year below USD 60.”
All in all, short-term fundamentals point to oversupply, but the lower prices the glut brings set the stage for a structural supply deficit in the medium to long term.
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