Global oil prices are likely to remain under pressure in 2026. Supply is expected to exceed demand by as much as 4 million barrels a day. The Energy Information Administration expects inventories to continue building through 2026, reinforcing downward pressure on prices.
West Texas Intermediate, the U.S. benchmark, is forecast to average around $51 a barrel in 2026, down from roughly $58 today. Some analysts warn that extreme excess supply could push prices sharply lower, with a temporary fall toward $40 a barrel not out of the question.
Any move toward $40, however, would likely be short-lived. Diamondback Energy, a major U.S. oil and gas producer, has already announced reductions in capital spending. As WTI falls toward $50 and below, other U.S. producers are likely to follow suit, cutting investment budgets. If prices dip into the mid-$40s, many will go further and shut in production altogether. The EIA itself forecasts a decline in U.S. output in 2026 as a result of lower prices.
Across much of the United States, the marginal cost of producing shale oil is around $45 a barrel. Domestic producers will not produce at a loss. In oil markets, sustained low prices eventually cure low prices.
The U.S. remains the world’s largest oil producer, including liquids, with output approaching 22 million barrels a day. Saudi Arabia and Russia rank second and third. But among the world’s major producers, U.S. oil remains relatively high-cost. The marginal cost of producing a barrel of oil in Saudi Arabia is around $15, while marginal costs in Russia are only slightly higher.
In theory, that allows Saudi Arabia and Russia to continue producing even with prices at $40 or below. In practice, Saudi Arabia cannot tolerate low prices indefinitely. The Saudi government needs oil prices near $90 a barrel to balance its budget, forcing it to borrow in international markets at current levels. Absent a major external shock that would push prices sharply higher, Saudi Arabia is likely to reduce production in 2026. History suggests those cuts would be aggressive. The Saudis have repeatedly shown they will not chase volume at the expense of revenue.
Russia, by contrast, is unlikely to voluntarily reduce output. The Kremlin needs oil revenues to sustain its war against Ukraine and its broader confrontation with the West. Still, geopolitical pressure on Russian exports is increasing. And over any given year, geopolitical disruptions from the Middle East to Venezuela routinely remove barrels from the market, sometimes overnight. Supply that appears abundant on paper can quickly become constrained in practice.
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For these reasons, extreme pessimism about global oil prices in 2026 is unwarranted. Reduced capital spending by U.S. producers will support prices at the margin. The probability is high that Saudi Arabia will unilaterally cut output to prevent a sustained price collapse. The U.S. and other Western countries are also likely to more aggressively police and curtail Russian oil exports, while Venezuelan barrels continue to be squeezed out of global supply.
Inevitably, sustained low prices sow the seeds of the next price recovery. Patient long-term investors could be well rewarded by owning the equities of major oil producers such as Exxon Mobil and Chevron Corporation. Both companies are well managed, maintain fortress balance sheets, and aggressively return free cash flow to shareholders.
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He publishes a daily Substack on financial markets, politics, and society. He can be followed on X and reached at [email protected].