Rising supply and weakening demand are overpowering geopolitics, sending oil prices toward a projected slump in 2026. Patrick Drennan reports.
THE AMERICAN Energy Information Administration (EIA) predicts that the Brent crude 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 punishing malefactors in the organisation.
Meanwhile, Russia already undersells oil at a lower-than-agreed OPEC+ price to fund its war in Ukraine.
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 companies Rosneft and Lukoil and 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 in Western Siberia, particularly the Khanty-Mansi and Yamalo-Nenets regions, and is shipped to China via the Eastern Siberia–Pacific Ocean oil Pipeline.
The largest oil users: China and India
India is one of the world’s largest economies that expects to increase its oil demand due to increased industrial usage. Also, India’s passenger car numbers are projected to grow almost fivefold from 2024 to 2050.
China is a major user but is weaning off oil. China's alternative energy growth, booming electric vehicle sector and large government subsidies for electric vehicles are impacting its oil demand.
China has heavily backed Russia and will continue to buy sanctioned Russian oil. India has promised to import more American and Venezuelan oil, but its oil processing industry is tightly intertwined with Russian companies (Rosneft owns 49% of India’s 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 roughly 500,000 barrels per day that Venezuela shipped before the American sanctions that started in 2017. The sanctions were lifted after American special forces arrested Venezuelan President Nicolás Maduro in 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 Maduro’s arrest and the oil payment structure through a Qatari bank will be decided this year.
America
American oil drilling is declining and 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 projected lower domestic demand due to the electrification of transport carriers.
American oil production is mainly shale-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 faces continued downward 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 a variety of countries.
Australia is totally reliant on imported refined oil, especially from East Asia. In 2026, it will increasingly import refined oil from India (tariff-free), which is ironically being supplied by Russia.
The demand for oil in 2026 is becoming increasingly dependent on petrochemical 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 Drennan is a journalist based in New Zealand, with a degree in American history and economics.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License
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