Energy Outlook 2026: The Structural Divergence Between Oil Surplus and Power Scarcity

The 2026 energy landscape is defined by a stark structural split. While the oil market faces a persistent surplus, the demand for electricity is growing at a pace that threatens to outstrip supply, creating a separate and more acute scarcity risk for power generation and grid infrastructure.

The oil market is set for a clear oversupply. Global oil demand is forecast to grow by 860 kb/d in 2026, a figure that has been upgraded. Yet supply growth is being sharply curtailed, with the forecast cut to just 2.4 mb/d. This widening gap between constrained supply and petrochemical-driven demand is the engine of the surplus. In fact, the share of oil used for petrochemical feedstocks is projected to rise to more than 60% in 2026, up from 40% the previous year. This shift means the growth is less about transportation fuel and more about industrial feedstocks, a segment that is less sensitive to price and more likely to absorb excess crude. The result is a market where crude is plentiful, evidenced by global observed inventories rising to four-year highs and benchmark prices trading near four-year lows around $63/bbl.

Contrast that with the electricity sector, where demand is accelerating. Global electricity demand is expected to expand at a rate of 3.7% in 2026, more than twice the growth of total energy demand. This surge is being driven by powerful, non-combustible engines: the cooling needs of a warming world, the voracious appetite of data centers, and the electrification of transportation. The IEA notes that in the United States, data center expansion alone is expected to keep annual electricity demand growth above 2% for the next two years. This growth is not uniform; emerging economies in Asia, led by China and India, are expected to drive 60% of the increase in global electricity consumption over the next two years.

The divergence is fundamental. Oil is a commodity where supply is being managed down and demand is shifting toward industrial uses, creating a surplus. Electricity, however, is a service where demand is exploding from multiple, hard-to-replace sources. The IEA warns that this must be matched by greater investment in grids, storage and other sources of flexibility to ensure power systems can meet the growing demand securely. The scarcity risk is not in the fuel itself, but in the capacity to deliver power reliably. For investors and policymakers, the 2026 story is not one of oil glut or power shortage in isolation, but of two parallel markets moving in opposite directions.

The Oil Market: Crude Surplus and the Product Tightness Disconnect

The global oil market is caught in a stark contradiction. On one side, there is a massive build of crude oil inventories, pushing them to four-year highs. On the other, key pricing hubs show only marginal stock builds, indicating a persistent local tightness in refined products. This disconnect is the defining feature of the current cycle.

The crude picture is one of abundance. Global observed inventories rose to four-year highs in October, with a 42 mb build in October alone. This surge is driven by a record volume of oil on water, where crude oil on water has surged by 213 mb since end-August. The fundamental pressure is clear: benchmark prices have been pushed to the edge of four-year lows, with North Sea Dated crude falling to $63.63/bbl in November. This is a market where the physical supply of crude is overwhelming the storage and demand channels.

Yet, this global surplus coexists with a surprising tightness in the product markets. The disconnect is stark: while crude piles up on water, crude and refined product stocks in key pricing hubs have seen only marginal builds. This divergence points to a bottleneck in the refining process. The market is not lacking crude; it is struggling to convert that crude into the high-demand products like diesel and jet fuel that drive global growth.

The evidence of this conversion constraint is in the margins. Refinery margins have rebounded sharply, pushing back to levels last seen in the aftermath of Russia's invasion of Ukraine. This is a powerful signal. High margins reward refiners for turning crude into products, but they also indicate that the supply of those products is constrained relative to demand. The market is paying a premium for the conversion service because the output is scarce.

The bottom line is a market in two parts. The crude side is oversupplied, with prices near multi-year lows. The product side is tight, with margins at peak levels. This setup creates a volatile environment where a disruption in refining runs or a shift in demand could quickly reverse the price picture. For now, the disconnect is the story.

The Power Scarcity Challenge: Grids, Storage, and Geopolitical Friction

The global power system is entering a period of intense strain, caught between accelerating demand and lagging investment. The International Energy Agency forecasts a robust expansion, with electricity demand set to grow 3.3% in 2025 and 3.7% in 2026. This pace is more than double the growth of total energy and well above the decade-long average. Yet the system is struggling to keep up, creating a volatile mix of scarcity and oversupply that threatens economic stability.

The demand surge is highly concentrated. In emerging Asia, China and India are expected to drive 60% of the increase in global electricity consumption over the next two years. Their growth is accelerating, with India's demand forecast to climb 6.6% next year. In the West, the driver is different. In the United States, the relentless expansion of data centers is expected to keep annual electricity demand growth above 2% through 2026, more than double the historical average. This creates a stark regional divergence: while demand is surging in Asia and tech hubs, it is growing more slowly in Europe.

This mismatch is already showing in the market. Despite a global energy crunch, wholesale electricity prices in the European Union and the United States rose by 30-40% from the same period a year earlier in the first half of 2025. At the same time, the frequency of negative prices is increasing, a sign of grid instability where oversupply from intermittent renewables meets inflexible demand. The IEA warns that this must be matched by greater investment in grids, storage and other sources of flexibility to ensure secure and affordable power.

The most severe consequence is a widening cost gap that threatens industrial competitiveness. Average electricity prices for energy-intensive industries in the European Union are still double those in the United States and significantly higher than in China. This disparity is not a minor footnote; it is a direct threat to the EU's manufacturing base, forcing a painful choice between high energy costs and potential relocation. The bottom line is that the power scarcity challenge is structural, driven by uneven demand growth and a critical underinvestment in the physical and regulatory infrastructure needed to balance it.

Catalysts and Scenarios: What to Watch in 2026

The investment thesis for 2026 hinges on a few critical, forward-looking factors. The first is the resolution of a persistent market disconnect. The global oil market is caught between a historic surplus in crude and unexpectedly tight product markets. This divergence, driven by a sharp decline in global oil supply in November and a surge in crude on water, has pushed refinery margins to crisis levels. The catalyst for a potential reset is the enforcement of sanctions in the first quarter. As the IEA notes, sanctions in 1Q26 will provide fresh challenges for refined product flows, which could tighten markets and pressure prices. Watch for whether this geopolitical pressure can overcome the fundamental oversupply, as it would test the durability of the current low-price environment and impact the profitability of refiners and petrochemical producers.

The second major factor is the pace of grid investment. Global electricity demand is set to grow at a robust 3.7% rate in 2026, more than twice the pace of total energy demand. This growth is being driven by data centers, electric vehicles, and industrial expansion, with China and India accounting for 60% of the increase. The IEA's report is clear: the strong expansion of renewables and nuclear must be matched by greater investment in grids to ensure secure power delivery. The key risk is a failure to build sufficient flexibility. Despite ample generation capacity, the system is vulnerable to shortages if storage and demand-response mechanisms are not scaled up. The increasing frequency of negative wholesale prices in some markets already signals a need for better balance. Without this investment, the system could face more frequent and severe power disruptions, creating volatility for utilities and industrial consumers alike.

The bottom line is that 2026 will be defined by the interplay of geopolitical pressure, infrastructure strain, and the relentless growth of electricity demand. The oil market's crude-product disconnect offers a near-term catalyst for volatility. Meanwhile, the power sector faces a structural challenge: meeting a 3.7% demand surge requires not just more generation, but a smarter, more flexible grid. Investors should watch for signs of grid investment acceleration in key regions like Asia and the US, and monitor for any breakdown in the oil market's fragile equilibrium as sanctions bite. These are the factors that will determine whether the current capital flows into tangible assets and critical materials find a stable foundation or face a sudden correction.