Rising supply and weakening demand are overpowering geopolitics, sending oil prices toward a projected slump in 2026.Patrick Drennanreports.
THE AMERICAN Energy Information Administration (EIA)predictsthat theBrentcrude oil price will average$56 per barrel in 2026, 19% less than in 2025.
This is good news for consumers, but not so good for producers. American producers of shale-fracked oil cannot profitably operate at that price.
OPEC+(Saudi Arabia, Russia, Iraq and the UAE) sets the world oil price by controlling how much oil it releases onto the international market.Recently, they have been limiting supply and punishingmalefactorsin the organisation.
Meanwhile, Russia already undersells oil at a lower-than-agreed OPEC+ price to fund its war in Ukraine.
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American sanctions and Ukraine’s missile and drone strikes have slowed Russian oil refining. However, Russia has been circumventing the latest U.S. sanctions on major companiesRosneftandLukoiland is now supplying most of its crude to China and India via new intermediaries.
One of the companies sanctioned, Lukoil, has joint ventures in Iraq, Egypt, Bulgaria, Mexico, Romania and Colombia, which are difficult to unravel. Most Russian oil continues to be drilled inWestern Siberia, particularly the Khanty-Mansi and Yamalo-Nenets regions, and is shipped to China via theEastern SiberiaPacific Ocean oil Pipeline.
The largest oil users: China and India
India is one of the worlds largest economies that expects to increase its oil demand due to increased industrial usage. Also, Indias passenger car numbers are projected togrow almost fivefoldfrom 2024 to 2050.
China is a major user but is weaning off oil. China’salternative energy growth, booming electric vehicle sector and large governmentsubsidies for electric vehiclesare impacting its oil demand.
China hasheavily backed Russiaand will continue to buy sanctioned Russian oil. India has promised to import more American and Venezuelan oil, but its oil processing industry istightly intertwined with Russian companies(Rosneft owns 49% of Indias refining company,Nayara Energy) and they will continue to refine the cheaper Russian oil for domestic usage.
Venezuela
Crude oil exports from Venezuela could eventually approach the roughly500,000 barrels per daythat Venezuela shipped before the American sanctions that started in 2017. The sanctions were lifted after American special forces arrested Venezuelan PresidentNicols Maduroin January 2026. It will take a while to get extra production out of the run-down Venezuelan oil infrastructure, but it will add to the international oil glut.
The legality of Maduros arrest and theoil payment structurethrough a Qatari bank will be decided this year.
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America
American oil drilling isdecliningand internal demand is marginally slowing. American refineries operated at 90.5% capacity,down from 90.9%in early February.American producers will hope the refining of Venezuelan crude and increased demand for oil over the summer will help, but this is not certain. The EIA has also projectedlower domestic demanddue to the electrification of transport carriers.
American oil production is mainlyshale-fracked oil, which is more expensive to produce than conventional oil drilling by overseas competitors. This is exacerbated by surging conventional oil supply from non-OPEC+ producers Guyana, Canada, Angola and Brazil.
Rest of the world
Europe’s oil demand in 2026 facescontinueddownward pressure, while East Asia has become a net oil importer as demand in nations like Indonesia and Malaysia outstrips local production. They import oil from avariety of countries.
Australia is totally reliant on imported refined oil, especially from East Asia. In 2026, it will increasinglyimport refined oil from India(tariff-free), which is ironically being supplied by Russia.
The demand for oil in 2026 is becoming increasingly dependent onpetrochemical feedstocks(naphtha, ethane, LPG) rather than just gasoline.
In summary, despite OPEC+ and American producers trying to slow the supply and keep the price high, the international market is flooded with oil. Even geopolitical issues concerning Russia, Venezuela and Iran cannot slow the production, and further regime change may generate more oil. All of this is offset by less demand. The prospects for domestic oil consumers in 2026 are good.
Patrick Drennanis a journalist based in New Zealand, with a degree in American history and economics.
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