An Oversupplied Horizon: Why 2026 Could Reprice the Entire Oil Landscape

Much of the current discussion still revolves around short term volatility and potential risk of geopolitics, yet the deeper signals are becoming harder to overlook. The coming year looks set to be one where physical fundamentals nudge the market toward a repricing of expectations.

On the demand side, global consumption is expected to rise by 0.9 mbd in 2025 reaching about 105.5 mbd, followed by another similar increase in 2026 and an even stronger expansion in 2027. Consequently, the suggestion that the world is close to peak demand appears premature. Emerging markets continue to drive global consumption and periods of softer prices tend to encourage usage rather than diminish it. The global energy system may be moving toward greater green-like energy sources, but oil remains embedded in the fabric of economic activity.

The picture grows more complicated once we shift our attention to supply.

Supply

Across both 2025 and 2026, oil supply is forecast to grow at three times the rate of demand. That imbalance is the beating heart of the 2026 bearish narrative and unlike previous cycles, this time the drivers are diversified, cost competitive and resilient.

Half of the growth through 2026 is expected to come from non-OPEC+ producers where two engines are now doing the heavy lifting, offshore mega projects and global shale.

Offshore supply development, only a few years ago, was considered bulky, expensive and vulnerable to price swings. Today, it has quietly become one of the most dependable long duration sources of supply growth. Offshore production is expected to rise 0.5 mbd in 2025 and more to 0.9 mbd in 2026.

Offshore production now sits at low end of the global cost curve and almost all Floating Production Storage and Offloading FPSO scheduled through 2029 has already secured investment approval. This creates something the oil market enjoys, which is near full visibility on future project completions. Put simply, these barrels are locked in and will come to market regardless of how spot prices move.

Global shale

Global shale remains the market’s most agile front. While US shale growth is slowing, efficiency improvements mean the industry still punches above its weight. Global shale added 0.8 mbd in 2025 and is set to add a further 0.4 mbd in 2026, assuming prices hold around the mid $50 area. The point is shale remains flexible. It cannot  fully offset the offshore production, but it contributes incremental supply that the market must absorb.

Inventories

Observable inventories have risen by 1.5 mbd so far this year with two thirds of that build stock accumulation in China.

From an oil balance perspective, the location of inventory is irrelevant. Whether in tanks or on ships, it is effectively held back from the market barrels that will re-enter balance calculations as soon as they are drawn. Carrying this forward, the surplus is projected to widen to 2.8 mbd in 2026 with a marginal improvement to 2.7 mbd in 2027. These are large numbers. Historically, the market weakens with imbalances above 1.5 mbd which usually forces price adjustments, producers’ intervention or both.

Prices

With this backdrop, the pull on prices is unmistakable. Brent is likely to slip below $60 in 2026, fall into the low $50s by Q4 and potentially end the year at a lower range. The situation deteriorates into 2027, where average Brent is forecasted to be around $40 if nothing changes.

This is the mechanical outcome of current imbalances. Historically, markets rarely allow such excess to play out cleanly. The system adjusts long before the math becomes extreme. And this is where the outlook becomes uncertain.

The Market Will Not Sit Still

While the headline surpluses look heavy, they almost never fully materialize. The burden of adjustment tends to fall on the supply side with the demand responding more slowly. Rebalancing to occur through three channels, higher demand catalysed by lower prices, Sub $60 oil revives consumption, especially in EM economies. The elasticity effect often underestimated but can help tighten balances modestly.

Voluntary supply restraint, OPEC+ will likely need to re-engage with material cuts if Brent threatens to be in the low $50s. Price anchoring has always been a strategic objective and 2026 would not be an exception.

Involuntary declines, some producers outside the Gulf are simply not profitable at low $50. Natural declines will start eating into the surplus as capex slows.

Taken together, these forces justify why the market may not fully embrace the dark scenarios. In line with this, the baseline price view anchored by realistic supply discipline, is for Brent to be in range $55-$60 in 2026, with WTI roughly $5 lower.

2026 Will Likely Force a Reset

The 2026 oil outlook is about recalibration. Supply is overwhelming short term balances and unless it self corrects, prices will likely need to find a lower clearing level. Yet markets are adaptive. Lower prices generate their own corrective feedback loops and major producers have both the incentive and capacity to stabilize conditions before surpluses become unmanageable.

For oil market observers, the key will be monitoring the pace of rebalancing, how quickly demand responds to cheaper oil, how decisively producers adjust supply and whether the offshore continues to push barrels into the system even as prices soften.