The US Energy Information Administration (EIA) has updated its projections for US crude production. US production is anticipated to peak at 13.87 million barrels per day in October and maintain this level through the end of the year.
However, a decline is expected by early 2026. A global supply surplus of approximately 2 million barrels per day is projected for the upcoming year. This surplus is likely to cause Brent crude oil prices to fall to around $55 per barrel.
Strategic Reserve Builds
Strategic reserve builds in China alongside lower-than-expected output from OPEC+ could provide some price support. The EIA suggests that China’s continued reserve building and OPEC+’s shortfall in hitting production targets may mitigate the supply surplus effects.
Despite mostly pessimistic forecasts, these factors might offer some stability to the global oil market according to the report.
With U.S. crude oil production hitting a record 13.87 million barrels per day this past October, we are looking at a market with heavy supply. This level of output is expected to hold through the end of this year, creating significant headwinds for prices. With Brent currently trading around $72, the path of least resistance appears to be downwards heading into 2026.
This suggests that traders should consider positioning for lower prices in the coming weeks, especially for contracts maturing in the first and second quarters of 2026. Establishing bearish positions, such as buying put options or selling call spreads on WTI and Brent, aligns with the forecast of a $55 average price next year. This is a substantial drop from current levels, indicating a strong potential trend.
Economic Indicators
We have seen a similar setup before, particularly during the 2014-2016 glut caused by the first U.S. shale boom. Back then, a sustained period of oversupply drove prices from over $100 down into the $30s. The current situation, with a projected 2 million barrel per day surplus, echoes that period and signals a potentially prolonged downturn.
However, we must watch for factors that could limit the downside, creating volatility and potential short-term squeezes. News from OPEC+ after their recent December 2025 meeting showed a commitment to roll over cuts, but reports of wavering compliance from some members support the view they will underproduce anyway. China’s plan to build its strategic reserves will also absorb some of the excess supply, providing a floor for prices.
The broader economic picture also supports a bearish oil thesis, as November’s U.S. inflation figures came in at a stubborn 3.1%, suggesting central banks may keep interest rates elevated. This typically slows economic growth and, by extension, curbs global oil demand. We see this weighing on the market as fears of a mild global recession in 2026 persist.
