Strength, then Oversupply? Parsing the Latest EIA Oil Forecast

The U.S. Energy Information Administration (EIA) recently released its Short-Term Energy Outlook (STEO), providing valuable insights into the global oil market for the next two years. The report highlights a shift in the oil supply-demand balance, with increased production outpacing demand growth, leading to potential oversupply and downward pressure on prices.

Increased Global Oil Production

The EIA forecasts that global oil production will grow more than global oil demand, with liquid fuels production increasing by 1.8 million barrels per day (b/d) in 2025 and 1.5 million b/d in 2026. This growth is driven by several factors:

1. Unwinding of OPEC+ production cuts: OPEC+ countries are expected to increase production, although they may produce less crude oil than stated in their most recent production target to avoid significant inventory builds.
2. Strong growth outside of OPEC+: Countries like Canada, Brazil, and Guyana are expected to contribute to production growth, with new offshore production facilities coming online in 2025.
3. Continued U.S. production growth: Although U.S. production growth slows in 2026 due to reduced drilling and completion activity, it remains a significant contributor to global oil supply.



Slower Global Oil Demand Growth

While global oil consumption is expected to grow, the rate of growth is slower than the pre-pandemic trend. This is due to:

1. Global oil consumption growth being less than the pre-pandemic trend, with non-OECD countries driving almost all global oil consumption growth.
2. Much of the growth in Asia, particularly in India, which is now the leading source of global oil demand growth, but still growing at a slower pace than its pre-pandemic trend.
3. Relatively unchanged OECD oil consumption across 2025 and 2026.

Implications for Oil Prices

The expected shift in the oil supply-demand balance in 2025 and 2026 is primarily driven by increased global oil production outpacing demand growth. This leads to potential oversupply and downward pressure on oil prices. The EIA forecasts that the Brent crude oil price will average $74 per barrel (b) in 2025, 8% less than in 2024, and then continue to fall another 11% to $66/b in 2026.

Geopolitical Events and Market Uncertainty

Geopolitical events, such as U.S. sanctions on Russia's oil sector, can significantly impact the oil market outlook. The EIA's forecast was completed before the U.S. issued additional sanctions targeting Russia's oil sector on January 10, 2025. These sanctions have the potential to reduce Russia's oil exports to the global market, which could lead to a tightening of global oil supply and put upward pressure on oil prices. However, the EIA's forecast did not account for these sanctions, and the impact on the oil market outlook remains uncertain.

In conclusion, the latest EIA oil forecast suggests a shift in the oil supply-demand balance, with increased production outpacing demand growth, leading to potential oversupply and downward pressure on prices. Investors should closely monitor geopolitical events and market dynamics to navigate the evolving oil market landscape.