Oil: Outlook 2026
2 JAN, 2026
By Violeta Todorova, Senior Research Analyst, Leverage Shares
OPEC+: from price support to market share acquisition
The Organization of Petroleum Exporting Countries (OPEC+) and its allies made a significant policy shift in 2025, moving from defending oil prices to protecting market shares, reintroducing supply at a much faster pace than initially expected.
According to the initial plan, OPEC+ was supposed to return 2.2 million barrels per day (bpd) of supply over an 18-month period. Instead, the alliance brought this volume back to the market in just six months. It then took a further step forward by starting to cut a second tranche of 1.65 million barrels per day of voluntary production cuts. Although further increases are set to be suspended in the first quarter of next year, OPEC+ has already restored about 411,000 barrels per day from this second tranche.
Given the expectations of an oil market surplus in 2026, it seems unlikely that the remaining 1.24 million barrels per day of this tranche will be reintroduced next year. That being said, the group's next steps will partly depend on the extent of Russian and American supply.
Crude under pressure due to supply surpluses
The crude markets are in a cautious position. WTI crude has had a tough year, with a drop of over 20% since the beginning of the year. The slump was largely driven by a strong increase in global supply, with production soaring following production increases by OPEC+, coupled with continued growth in the United States and other key producers. Expectations of a supply surplus have strengthened, particularly towards the end of this year and in 2026, putting downward pressure on prices.
Looking to 2026, investors are trying to assess the extent of the surplus and the scope of crude price weakness.
OPEC and IEA disagree on oil demand and supply forecasts for 2026
Supply growth has been a defining theme in recent years. Non-OPEC producers, particularly the United States, Brazil, Canada, and Argentina, increased production in 2025. However, this pace is likely to slow down in 2026. OPEC predicts that this moderation will be sufficient to maintain a relatively solid global balance, if paired with robust consumer growth. While the International Energy Agency (IEA) indicates a broader increase in supply that still exceeds the increase in demand, despite sanctions slowing exports from Russia and Venezuela and the costs of shale oil slowing growth in the United States.
This is the most evident divergence in the forecasts of the two agencies. In its latest assessments, OPEC has indicated that global oil demand will increase in 2026, supported by resilient economic growth in key regions such as Asia, the Middle East, and Latin America, suggesting that the oil market could be in balance.
Conversely, the IEA's December forecasts present a more cautious stance. The agency has revised upwards its growth forecasts for both this year and next, citing a rosier macroeconomic context and the easing of tariff concerns that support consumption.
Although the agency has revised downwards its forecasts on the global oil supply surplus for next year for the first time since May, it is predicted that the global oil supply will exceed demand by 3.84 million barrels per day in 2026, down from the surplus of 4.09 million barrels per day forecasted in November, still keeping the market in a situation of oversupply.
We believe that the surplus in the oil market will increase in 2026, following the decision of OPEC+ to cancel supply cuts at a faster pace than expected, and we forecast a surplus of over 2 million barrels per day in 2026.
Probable decline in US crude oil supply in 2026
US oil production remained resilient in 2025, despite persistent weakness in WTI prices and a significant slowdown in drilling activity. According to Baker Hughes, the number of US oil rigs has decreased by over 15% since the beginning of the year, reaching the lowest level since September 2021, when the sector was still emerging from the impact of the Covid crisis.
Nevertheless, US crude oil production continued to set new records, exceeding 13.8 million barrels per day in September 2025. Production is on track to reach an average of about 13.6 million barrels per day this year, with an annual growth of about 360,000 barrels per day.
Looking to the future, however, the prospects for 2026 appear less favorable. With prices set to remain under pressure, we predict that US crude oil production will begin to slow down in 2026. Our base scenario assumes WTI prices consistently below 60 dollars per barrel, which will increase the risk of more pronounced production declines. Shale producers require an average oil price of about 65 dollars per barrel to drill a new well profitably, highlighting the growing tension between prices and future supply growth.
Oil outlook for 2026: The impending oversupply heralds lower prices
The increased oil production and the impending oversupply are creating persistent downward pressure on crude oil prices, which is likely to extend into the coming months. A break below the key support of 55.12 dollars appears increasingly likely, suggesting that WTI crude could drop to about 50 dollars per barrel in the first quarter of 2026, before stabilizing around that level for the rest of the year. Although short-term price weakness is likely, the downside appears increasingly contained. The discipline of OPEC+ production policy and China's current buildup of strategic and commercial reserves should act as stabilizing forces, limiting the extent of further price declines.
