Insights 
VT 
The EIA forecasts a decrease in US oil production by 2026, projecting it at 13.37 million barrels per day (mbpd), down from a previous estimate of 13.49 mbpd. The 2025 forecast remains steady at 13.42 mbpd. This adjustment comes amid decreasing active drilling rigs and declining oil prices.
In terms of demand, the EIA’s 2025 prediction for US oil demand has been revised to 20.4 mbpd from 20.5 mbpd previously. Natural gas demand is expected to hold steady at 91.3 billion cubic feet per day. Globally, the 2025 oil demand projection is reduced slightly to 103.5 mbpd from 103.7 mbpd, with 2026 demand expected to remain steady at 104.6 mbpd.
Oil Price Recovery and Supply Dynamics
The recent oil price recovery is underscored by global oil demand expected to be 102.60 mbpd, compared to a supply of 104.24 mbpd in May 2025. The EIA notes a decline in US crude oil production from a peak of 13.5 million barrels per day in the second quarter of 2025 to approximately 13.3 million barrels per day by the fourth quarter of 2026.
That adjustment by the Energy Information Administration reflects more than just a statistical update—it underlines a changing production environment in the United States. With drilling activity losing pace and prices struggling to stabilise, the lowered expectations for future output are not wholly surprising. This isn’t an anomaly. It mirrors operational caution across shale producers who are faced with compressed margins and tighter capital budgeting moving forward.
The revision to US oil demand, though slight, hints at marginally weaker consumption expectations amidst a broader economic setting that remains sluggish. While the reduction is only by 0.1 mbpd, it suggests tempered confidence in near-term industrial and transportation demand. It’s not about volatility; it’s about softening undercurrents that are beginning to show through more clearly.
Globally, the demand downgrade for 2025, from 103.7 to 103.5 mbpd, further reiterates that assumptions around post-pandemic strength are being challenged again. Though some economies show resilience, others are exhibiting demand fatigue, particularly in regions where refiners face narrowed crack spreads and consumers remain price-sensitive. The picture here isn’t one of collapse, but of incremental pressure.
Short-term Supply Imbalance and Market Impact
In the near term, the May 2025 forecast where supply outpaces demand by more than 1.6 mbpd is especially worth noting. That sort of imbalance, even in a single month, is ripe for short-term positioning. When supply runs ahead like this, and inventories start building, downward price force typically follows—not immediately and not uniformly, but often enough to form a reliable pattern. One ought not to brush past that.
The peak in US production at 13.5 mbpd, followed by a drop to 13.3 mbpd by late 2026, forms a clear trajectory. Declines like this, though gradual, send signals that no amount of cost-optimised drilling is likely to offset the natural decline rates from existing wells. There may still be some room for efficiency improvements, but operational output is already tight along the edges.
What we’re watching here is a slightly softer demand curve brushing up against a slightly shorter supply curve, all while prices wobble. It’s a setup that’s compelling. Transaction volumes often fan out when these updates hit the screens, especially when longer-dated futures begin to reflect a more compressed price band.
The forward curve should respond if these dynamics deepen. Calendar spreads in the outer months might lean tighter if slower output growth takes hold while stockpiles rise ahead of schedule. This points toward structured strategies, especially where carry costs are marginal and spread roll yield is desirable.
Deploying clear, time-grounded setups with tight risk ranges is where opportunity opens next. Those who assume that production will surge back quickly may misjudge the constraints domestic producers now face. Meanwhile, global usage isn’t spiralling upwards fast enough to soak up the excess.
We keep a careful eye on these baseline revisions—they don’t make the headlines, but they shift the pricing architecture in futures and swaps. Price supports, often assumed to lie beneath such updates, are increasingly unstable when short-term surpluses like the May forecast appear. Anchoring views in fundamental imbalances, even brief ones, tends to be more reliable than crowd sentiment.
These numbers blend into longer models that we run—those scenarios aren’t flashing strength this quarter, but rather a tentative holding pattern ahead of seasonal realignment later in the year. That’s where the curve could truly steepen or invert, depending on how storage readings compare to refinery inputs over the next several reports.
Situations like this, when demand expectations are pulled back and supply misaligns only temporarily, may lead to exaggerated moves across nearby expiries. Reaction tends to outpace reality. One moment of inventory build can set tone for weeks. It has before.
These are not neutral figures. They are the ground on which positioning develops—figures that shape both the upside cap and the downside floor, tighter now than in recent cycles.
